EXHIBIT 10.25
KREG OPERATING CO. STOCK PURCHASE AGREEMENT
BETWEEN AND AMONG
XXXX REAL ESTATE GROUP, INC.
AND ITS WHOLLY OWNED SUBSIDIARY,
KREG HOLDINGS INC.,
AND
KN HOLDING CORP.
AND XXXX DEVELOPMENT COMPANY LLC
AND
XXXXXX X. XXXX AND
XXXXXXX X. XXXXXXX
MARCH 30, 1998
TABLE OF CONTENTS
PAGE
I. SALE AND PURCHASE OF STOCK . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 AGREEMENT TO SELL AND PURCHASE STOCK . . . . . . . . . . . . . . 1
1.2 PURCHASE PRICE . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 CLOSING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
II. REPRESENTATIONS AND WARRANTIES OF KREG AND KHI . . . . . . . . . . . . . 3
2.1 CAPITALIZATION; OWNERSHIP OF KOC SHARES. . . . . . . . . . . . . 3
2.2 SUBSIDIARIES AND OTHER INVESTMENTS . . . . . . . . . . . . . . . 3
2.3 ORGANIZATION AND GOOD STANDING . . . . . . . . . . . . . . . . . 4
2.4 AUTHORIZATION AND VALIDITY . . . . . . . . . . . . . . . . . . . 4
2.5 ABSENCE OF CONFLICTING AGREEMENTS OR REQUIRED CONSENTS . . . . . 4
2.6 FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . 5
2.7 EMPLOYEE BENEFIT PLANS; ERISA. . . . . . . . . . . . . . . . . . 6
2.8 TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.9 TRANSACTIONS WITH AFFILIATES . . . . . . . . . . . . . . . . . . 9
2.10 ENVIRONMENTAL LIABILITY. . . . . . . . . . . . . . . . . . . . . 9
2.11 COMPLIANCE WITH APPLICABLE LAWS. . . . . . . . . . . . . . . . . 10
2.12 LITIGATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.13 STATEMENTS TRUE AND CORRECT. . . . . . . . . . . . . . . . . . . 10
2.14 FINDERS' FEES. . . . . . . . . . . . . . . . . . . . . . . . . . 11
III. REPRESENTATIONS AND WARRANTIES OF KNHC AND KDC. . . . . . . . . . . . 11
3.1 ORGANIZATION AND GOOD STANDING; QUALIFICATION. . . . . . . . . . 11
3.2 AUTHORIZATION AND VALIDITY . . . . . . . . . . . . . . . . . . . 11
3.3 ABSENCE OF CONFLICTING AGREEMENTS OR REQUIRED CONSENTS . . . . . 11
3.4 LITIGATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.5 NO CONTINUING INTEREST . . . . . . . . . . . . . . . . . . . . . 12
3.6 STATEMENTS TRUE AND CORRECT. . . . . . . . . . . . . . . . . . . 12
3.7 FINDER'S FEES. . . . . . . . . . . . . . . . . . . . . . . . . . 12
IV. COVENANTS OF KREG AND KHI. . . . . . . . . . . . . . . . . . . . . . . 13
4.1 OTHER OFFERS . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.2 CONDUCT OF BUSINESS BY KOC . . . . . . . . . . . . . . . . . . . 14
4.3 NOTICE OF CERTAIN EVENTS . . . . . . . . . . . . . . . . . . . . 15
4.4 CONSUMMATION OF AGREEMENT. . . . . . . . . . . . . . . . . . . . 16
V. COVENANTS OF KNHC AND KDC. . . . . . . . . . . . . . . . . . . . . . . 16
5.1 CONSUMMATION OF AGREEMENT. . . . . . . . . . . . . . . . . . . . 16
5.2 NOTICE OF CERTAIN EVENTS . . . . . . . . . . . . . . . . . . . . 16
5.3 RESPONSIBILITY FOR ACCRUED EMPLOYEE BENEFITS . . . . . . . . . . 16
5.4 MEDICAL PREMIUMS AND COSTS . . . . . . . . . . . . . . . . . . . 17
5.5 RELEASE OF GUARANTEES. . . . . . . . . . . . . . . . . . . . . . 17
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VI. CONDITIONS TO OBLIGATIONS OF KREG AND KHI . . . . . . . . . . . . . . . 17
6.1 REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . 17
6.2 COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.3 PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.4 GOVERNMENT APPROVALS . . . . . . . . . . . . . . . . . . . . . . 17
6.5 CLOSING DELIVERIES . . . . . . . . . . . . . . . . . . . . . . . 17
6.6 OTHER DOCUMENTS. . . . . . . . . . . . . . . . . . . . . . . . . 18
VII. CONDITIONS TO OBLIGATIONS OF KNHC. . . . . . . . . . . . . . . . . . . 18
7.1 REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . 18
7.2 COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
7.3 PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . 18
7.4 GOVERNMENT APPROVALS AND REQUIRED CONSENTS . . . . . . . . . . . 18
7.5 CLOSING DELIVERIES . . . . . . . . . . . . . . . . . . . . . . . 18
7.6 OTHER DOCUMENTS. . . . . . . . . . . . . . . . . . . . . . . . . 18
VIII. CLOSING DELIVERIES BY THE PARTIES . . . . . . . . . . . . . . . . . . 19
8.1 DELIVERIES OF KREG AND KHI . . . . . . . . . . . . . . . . . . . 19
8.2 DELIVERIES OF KNHC. . . . . . . . . . . . . . . . . . . . . . . 20
IX. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
9.1 INDEMNIFICATION BY KDC . . . . . . . . . . . . . . . . . . . . . 21
9.2 INDEMNIFICATION BY KREG. . . . . . . . . . . . . . . . . . . . . 22
9.3 CLAIMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
9.4 TAX INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . 25
9.5 PROCEDURES RELATING TO INDEMNIFICATION OF TAX CLAIMS . . . . . . 26
X. NONDISCLOSURE OF CONFIDENTIAL INFORMATION. . . . . . . . . . . . . . . . 27
10.1 NON -DISCLOSURE COVENANT OF KDC AND THE INDIVIDUAL
PARTIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
10.2 NON-DISCLOSURE COVENANT OF KREG AND KHI. . . . . . . . . . . . . 28
10.3 SURVIVAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
XI. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
11.1 AMENDMENT; WAIVERS . . . . . . . . . . . . . . . . . . . . . . . 28
11.2 ASSIGNMENT; CONTRIBUTION AND SUBSEQUENT TRANSFERS. . . . . . . . 28
11.3 PARTIES IN INTEREST; NO THIRD PARTY BENEFICIARIES. . . . . . . . 29
11.4 SCHEDULES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
11.5 ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . 29
11.6 SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . 29
11.7 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. . . . . . 29
11.8 GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . . . 30
11.9 CAPTIONS AND REFERENCES. . . . . . . . . . . . . . . . . . . . . 30
11.10 GENDER AND NUMBER. . . . . . . . . . . . . . . . . . . . . . . . 30
11.11 CONSTRUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . 30
11.12 CONFIDENTIALITY; PUBLICITY AND DISCLOSURES . . . . . . . . . . . 30
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11.13 NOTICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
11.14 NO WAIVER. . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
11.15 TERMINATION PRIOR TO CLOSING . . . . . . . . . . . . . . . . . . 32
11.16 TIME OF ESSENCE. . . . . . . . . . . . . . . . . . . . . . . . . 33
11.17 REMEDIES NOT EXCLUSIVE . . . . . . . . . . . . . . . . . . . . . 33
11.18 COSTS, EXPENSES AND LEGAL FEES . . . . . . . . . . . . . . . . . 33
11.19 EXECUTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
11.20 COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . . 33
11.21 SECTION 338(h)(10) ELECTION. . . . . . . . . . . . . . . . . . . 33
11.22 SURVIVAL OF TAX PROVISIONS . . . . . . . . . . . . . . . . . . . 34
11.23 REAL AND PERSONAL PROPERTY TAXES . . . . . . . . . . . . . . . . 34
11.24 TRANSFER TAXES . . . . . . . . . . . . . . . . . . . . . . . . . 34
11.25 RETURN FILINGS, REFUNDS AND CREDITS. . . . . . . . . . . . . . . 34
11.26 CONSISTENT TAX POSITIONS . . . . . . . . . . . . . . . . . . . . 36
11.27 TERMINATION OF TAX SHARING AGREEMENTS. . . . . . . . . . . . . . 36
XII. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
EXHIBITS
EXHIBIT A
EXHIBIT B
SCHEDULES
SCHEDULE 1.2
SCHEDULE 2.2
SCHEDULE 2.5
SCHEDULE 2.7A
SCHEDULE 2.7B
SCHEDULE 2.8
SCHEDULE 2.9
SCHEDULE 2.12
SCHEDULE 5.5
SCHEDULE 8.1(h)
iii
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("AGREEMENT") is entered into as of this 30th
day of March, 1998 between and among Xxxx Real Estate Group, Inc., a Delaware
corporation ("KREG"), KREG Holdings Inc., a Delaware corporation which is a
wholly -owned subsidiary of KREG ("KHI"), KN Holding Corp., a New York
corporation ("KNHC"), Xxxx Development Company LLC, a Delaware limited liability
company ("KDC"), and, solely for purposes of SECTION 10.1, Xxxxxx X. Xxxx and
Xxxxxxx X. Xxxxxxx (collectively , the "INDIVIDUAL PARTIES") and solely for the
purpose of SECTION 4.1, Xxxxxx X. Xxxx. Capitalized terms not otherwise defined
when first used herein shall have the meaning assigned to them in ARTICLE XII
of this Agreement.
R E C I T A L S
WHEREAS, KHI owns all 1,000 shares of Common Stock (the "STOCK") of KREG
Operating Co., a Delaware corporation ("KOC");
WHEREAS, KREG desires to cause KHI to sell to KNHC, and KNHC desires to
purchase from KHI, the Stock; and
WHEREAS, KNHC desires to cause KOC to be liquidated and its assets and
liabilities to be contributed to KDC (such liquidation and contribution,
collectively, the "Contribution"); following which KNHC shall be relieved of any
further obligation under this Agreement, provided that all of its assets and
obligations hereunder have been transferred to and assumed by KDC, pursuant to
the Contribution, to the same extent as if KDC had originally purchased the
Stock pursuant to this Agreement.
A G R E E M E N T
NOW, THEREFORE, in consideration of the preceding recitals and the
representations, warranties, covenants and agreements set forth herein, and
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereto agree as follows:
I. SALE AND PURCHASE OF STOCK
1.1 AGREEMENT TO SELL AND PURCHASE STOCK. For the consideration
hereinafter provided and subject to the terms and conditions of this Agreement,
at the Closing (as defined in SECTION 1.3), KHI shall sell, assign, transfer,
convey and deliver to KNHC, free and clear of all liens, charges, claims or
encumbrances, and KNHC shall purchase and acquire from KHI, the Stock. At the
Closing, KHI shall cause to be delivered to KNHC
1
a certificate representing the Stock, together with an accompanying signed stock
power or instrument of assignment, duly endorsed in blank for the transfer of
the Stock to KNHC.
1.2 PURCHASE PRICE. Subject to the terms and conditions of this
Agreement and in addition to the other deliverables of KNHC as set forth in
SECTION 8.2, KNHC agrees to pay to KHI the collective purchase price (the
"PURCHASE PRICE") for the Stock as follows:
(a) $1 million of the Purchase Price shall be delivered to KHI in
immediately available funds upon the execution of this Agreement (the
"INITIAL CONSIDERATION"), which shall not be subject to return to KNHC
except to the extent provided for in accordance with the provisions of
SECTION 4.1 or SECTION 11.15;
(b) $29 million of the Purchase Price shall be delivered to KHI in
immediately available funds at the Closing (the "CLOSING CONSIDERATION");
and
(c) such additional amount shall be delivered to KHI in immediately
available funds at the Closing as is determined no later than one (1) day
prior to the Closing in accordance with the methodology set forth on
SCHEDULE 1.2 (the "1998 ACTIVITY CONSIDERATION"). As a clarification to
the methodology set forth on SCHEDULE 1.2, it is the intention of the
parties hereto that all 1998 revenue through and including the Closing Date
received by KOC shall decrease the Purchase Price and all 1998 expenses
through, and including the Closing Date paid by KOC shall increase the
Purchase Price. The dollar amounts set forth on SCHEDULE 1.2 are based
upon reasonably available information as of the date of this Agreement,
however, such amounts shall be updated on the basis of the best available
information prior to the Closing and the amount of the 1998 Activity
Consideration shall then be recalculated for the purpose of determining the
amount to be paid on the Closing Date. Within thirty (30) days after the
Closing Date, a final accounting of KOC's consolidated financial activity
from January 1, 1998 through the Closing Date shall be completed and
reviewed by the accounting staffs of KDC and KREG. Thereafter, the amount
of the 1998 Activity Consideration shall be calculated for the final time
and (i) if the amount paid on the Closing Date is determined to be less
than the amount of the final calculation then KNHC shall pay the
incremental amount to KREG in immediately available funds within five (5)
days of such determination, or (ii) if the amount paid on the Closing Date
is determined to be more than the amount of the final calculation then KREG
shall repay the incremental amount to KNHC in immediately available funds
within five (5) days of such determination.
The amount of all cash balances in the various bank accounts of KOC and the
Investments, as reflected on the books and records of KOC and the Investments,
but subject to adjustment for month-end bank account reconciliations to the book
balance, shall be delivered to KREG on the Closing Date as a partial repayment
of intercompany debt owed to KREG by KOC and its Affiliates. Following the
final calculation and payment in full of the 1998 Activity Consideration, the
balance of the amount of intercompany debt of
2
KOC and the Investments that is reflected as being outstanding on the books of
KREG shall be deemed a capital contribution made as of the Closing Date.
1.3 CLOSING. The closing of the sale and purchase of the Stock under and
in accordance with this Agreement (the "CLOSING") shall take place at the
offices of XxXxxxxxx, Will & Xxxxx, 0000 Xxxx Xxxxxx, Xxxxx 000, Xxxxxxx Xxxxx,
Xxxxxxxxxx, on (a) Xxxxx 00, 0000, (x) such later date determined in accordance
with the provisions of SECTION 4.1, (c) such later date determined by KNHC
pursuant to the proviso in SECTION 7.4, or (d) such earlier or later date as may
be mutually agreed to in writing by the parties hereto (the "CLOSING DATE").
II. REPRESENTATIONS AND WARRANTIES OF KREG AND KHI
As an inducement to KNHC and KDC to enter into this Agreement and to
purchase the Stock, KREG and KHI jointly and severally represent and warrant to
KNHC and KDC as set forth below in this ARTICLE II; provided, however, that no
such representation or warranty which is qualified as being subject to the
Knowledge of the Individual Parties shall be deemed to have been made in the
event that such representation or warranty was not, to the Knowledge of the
Individual Parties, true and correct at the time(s) made:
2.1 CAPITALIZATION; OWNERSHIP OF KOC SHARES. The authorized capital
stock of KOC consists of the Stock, all of which shares are issued and
outstanding and owned beneficially and of record by KHI. Subject to the
Knowledge of the Individual Parties, there are no securities convertible into or
exchangeable or exercisable for shares of capital stock of KOC and no warrants,
calls, options or other rights to acquire from KOC or KHI, or any obligation of
KOC or KHI to issue, any securities of KOC.
2.2 SUBSIDIARIES AND OTHER INVESTMENTS. SCHEDULE 2.2 identifies KOC's
equity or other interests in all of its direct and indirect subsidiaries and the
KOC Employee Affiliates (collectively, the "INVESTMENTS") as of the date of this
Agreement, but no representation or warranty is made as to any of the assets
held by any of the KOC Employee Affiliates or Project Partnerships, including
any of their respective equity or other interests in any other entity, joint
venture or project. All the outstanding shares of capital stock of, or other
equity interests in, each Investment are: duly authorized, validly issued, fully
paid and nonassessable and not subject to preemptive rights; are (subject to the
Knowledge of the Individual Parties) owned directly or indirectly by KOC free
and clear of all pledges, claims, liens, charges, encumbrances and security
interests securing indebtedness or similar obligations (collectively "Liens");
and are (subject to the Knowledge of the Individual Parties) free of any other
restriction on the right to vote, sell or otherwise dispose of such capital
stock or other ownership interests that would prevent the operation by KOC of
such Investment's business as currently conducted, provided that although the
partnership agreements of each KOC Employee Affiliate do not contain any
restrictions on transfer, the organizational documents of certain Project
Partnerships may contain restrictions on transfer of KOC's interests in the KOC
Employee Affiliates. Other than as
3
set forth on SCHEDULE 2.2, there are no securities convertible into or
exchangeable or exercisable for shares of capital stock of, or other interests
in, any Investment and (subject to the Knowledge of the Individual Parties) no
warrants, calls, options or other rights to acquire from KOC or any Investment,
or (subject to the Knowledge of the Individual Parties) any obligation of KOC or
any Investment to issue, any securities of any Investment. There are no
agreements, commitments, understandings, arrangements, facts or circumstances
which create or would give rise to the creation of any direct, contingent or
other economic or beneficial interest being held by KREG or KHI or their
respective lower tier Affiliates after the Closing which relates directly or
indirectly to any of the Investments or their assets including, without
limitation, the Project Partnerships (collectively the "Interests") and to the
extent any such Interests exist, KREG disclaims any legal or beneficial interest
in the Project Partnerships and agrees that if it receives any proceeds with
respect thereto to promptly remit such proceeds to KDC.
2.3 ORGANIZATION AND GOOD STANDING. Each of KREG, KHI, KOC and each
Investment is a corporation, or limited partnership duly organized, validly
existing and in good standing under the laws of the state of its organization
and has the requisite corporate or other power and authority to carry on its
business as now conducted. KOC and each Investment is duly qualified or
licensed to do business and is in good standing (with respect to jurisdictions
which recognize such concept) in (subject to the Knowledge of the Individual
Parties) each jurisdiction in which the nature of its business or the ownership,
leasing or operation of its properties makes such qualification or licensing
necessary except where the failure to be qualified or licensed would not have a
Material Adverse Effect. KREG has made available to KNHC prior to the execution
of this Agreement complete and correct copies of the certificate of
incorporation and by-laws of KOC and the certificates of incorporation, by-laws,
partnership agreements, or similar organizational documents of each Investment,
in each case as amended to date.
2.4 AUTHORIZATION AND VALIDITY. KREG and KHI have all requisite
corporate power to enter into this Agreement and all other agreements entered
into in connection with the transactions contemplated hereby and to consummate
the transactions contemplated hereby and thereby. The execution, delivery and
performance by KREG and KHI of this Agreement and the transactions contemplated
hereby have been duly authorized by all necessary action on the part of the
respective Board of Directors or stockholders of KREG and KHI. This Agreement
has been duly executed by each of KREG and KHI, and this Agreement and all other
agreements and obligations entered into and undertaken in connection with the
transactions contemplated hereby to which KREG or KHI is a party constitute, or
upon execution will constitute, valid and binding agreements of KREG or KHI, as
the case may be, enforceable against it in accordance with their respective
terms, except as enforceability may be limited by bankruptcy or other laws
affecting the enforcement of creditors' rights generally, or by general equity
principles, or by public policy.
2.5 ABSENCE OF CONFLICTING AGREEMENTS OR REQUIRED CONSENTS. Neither the
execution, delivery and performance of this Agreement by KREG and KHI and any
other
4
documents contemplated hereby (with or without the giving of notice, the lapse
of time, or both): (a) requires the consent of any governmental or regulatory
body or authority or any other third party except for such consents which have
been identified on SCHEDULE 2.5 (the "Required Consents"), excluding the
consents of (i) constituent partners or members of Project Partnerships, (ii)
lenders to KOC Employee Affiliates, Project Partnerships or their respective
lower tier Affiliates, or (iii) any other party with respect to any act or
omission by the KOC Employee Affiliates, Project Partnerships or their
respective lower tier Affiliates (collectively (i) through (iii) being referred
to herein as the "Project Consents" a complete list of which has been prepared
by the Individual Parties and is set forth on SCHEDULE 2.5); (b) will conflict
with any provision of KREG's, KHI's, KOC's or any Investment's organizational
documents; (c) other than with respect to the properties of the KOC Employee
Affiliates, Project Partnerships or their respective lower tier Affiliates, will
conflict with, result in a violation of, or constitute a default under any law,
ordinance, regulation, ruling, judgment, order or injunction of any court or
governmental instrumentality to which KREG or KHI or (subject to the Knowledge
of the Individual Parties) KOC or any Investment is a party or by which KREG or
KHI or (subject to the Knowledge of the Individual Parties) KOC, any Investment
or their respective properties are subject or bound; (d) other than with respect
to the properties of the KOC Employee Affiliates, Project Partnerships or their
respective lower tier Affiliates, will conflict with, constitute grounds for
termination of, result in a breach of, constitute a default under, require any
notice under, or accelerate or permit the acceleration of any performance
required by the terms of any agreement, instrument, license or permit, material
to this transaction, to which KREG or KHI or (subject to the Knowledge of the
Individual Parties) KOC or any Investment is a party or by which KREG, KHI, or
(subject to the Knowledge of the Individual Parties) KOC, any Investment or any
of their respective properties are bound except for such conflict, termination,
breach or default, the occurrence of which would not result in a Material
Adverse Effect on KOC; and (e) other than with respect to the properties of the
KOC Employee Affiliates, Project Partnerships or their respective lower tier
Affiliates, will create (subject to the Knowledge of the Individual Parties) any
Encumbrance or restriction upon any of the assets or properties of KOC or any
Investment.
2.6 FINANCIAL STATEMENTS. A true and complete copy of KOC's consolidated
balance sheet as of December 31, 1997 and KOC's consolidated balance sheet as of
February 28, 1998, each of which is attached hereto as EXHIBIT A (collectively,
the "Balance Sheet") have been prepared on an accrual basis as of the dates
indicated (except as may be indicated in the notes thereto) and, subject to the
Knowledge of the Individual Parties, fairly present the consolidated financial
position of KOC as of the dates thereof, are complete and correct and consistent
with the books and records of KOC, which books and records are complete and
correct, (subject to adjustments for (i) possible non-recovery of KOC's
approximately $317,000 investment in X.X. Xxxx Investment Company, Ltd. as of
December 31, 1997; (ii) possible non-collection of a $115,000 receivable as of
December 31, 1997, and $155,000 as of February 28, 1998, from Lin with respect
to the Mall of Taiwan Project, a $83,250 receivable from X.X. Xxxx Investment
Company, Ltd., and a $23,000 receivable from the LAX Project, or any other
non-collectible receivable not within the Knowledge of KREG; and (iii)
threatened litigation regarding a commission claims dispute
5
with respect to KOC's EPA project in Kansas City, Kansas). While treatment of
various Balance Sheet items for tax return purposes may differ from financial
reporting, the numbers reflected in the Balance Sheet as of December 31, 1997
are consistent with data to be used in preparation of KREG's tax returns.
2.7 EMPLOYEE BENEFIT PLANS; ERISA
(a) SCHEDULE 2.7A contains a true and complete list (subject to the
Knowledge of the Individual Parties) of each material bonus, incentive
compensation, severance, change-in-control, or termination pay, profit-sharing,
pension, or retirement plan, program, agreement or arrangement and each other
material employee benefit plan, program, agreement or arrangement, sponsored,
maintained or contributed to or required to be contributed to by KOC or any of
its subsidiary corporations or KREG or any subsidiary corporations of KREG, all
of which are set forth in SCHEDULE 2.7B (an "ERISA AFFILIATE"), that together
with KOC would be deemed a "single employer" within the meaning of SECTION
4001(b)(1) of ERISA, for the benefit of any current or former employee or
director of KOC, or any ERISA Affiliate (the "PLANS"). Included in SCHEDULE
2.7A are the Plans that are "employee welfare benefit plans," or "employee
pension benefit plans" as such terms are defined in Sections 3(1) and 3(2) of
ERISA (such plans being hereinafter referred to collectively as the "ERISA
PLANS"). None of KOC nor any ERISA Affiliate has (subject to the Knowledge of
the Individual Parties) any formal plan or commitment, whether legally binding
or not, to create any additional Plan or modify or change any existing Plan that
would affect any current or former employee or director of KOC or any ERISA
Affiliate.
(b) With respect to each of the Plans, KREG or KOC has heretofore made
available to KNHC true and complete copies of (i) each of the Plan documents
(including all amendments thereto) for each written Plan or a written
description of any Plan that is not otherwise in writing, (ii) if the Plan is
funded through a trust or any other funding vehicle, a copy of the trust or
other funding agreement (including all amendments thereto) and the latest
financial statements thereof, if any, and (iii) the most recent determination
letter received from the IRS with respect to each Plan that is intended to be
qualified under section 401(a) of the Internal Revenue Code of 1986, as amended
(the "CODE").
(c) No liability under Title IV of ERISA has been incurred by KOC or any
ERISA Affiliate (except for the Pullman Inc. Non-contributory Pension Plan which
is the responsibility of MAFCO Consolidated Group, Inc., and the current status
of which KREG is not aware) that has not been satisfied in full, and no
condition exists that presents a material risk to KOC or any ERISA Affiliate of
incurring any liability under such Title, other than liability for premiums due
the Pension Benefit Guaranty Corporation (the "PBGC"), which payments have been
or will be made when due. To the extent this representation applies to Sections
4064, 4069 or 4204 of Title IV of ERISA, it is made not only with respect to the
ERISA Plans but also with respect to any employee benefit plan, program,
agreement or arrangement subject to Title IV of ERISA to which KOC or any ERISA
Affiliate made, or was required to make, contributions during the past six
years.
6
(d) The PBGC has not instituted proceedings pursuant to Section 4042
of ERISA to terminate any of the ERISA Plans subject to Title IV of ERISA,
and no condition exists that presents a material risk that such proceedings
will be instituted by the PBGC.
(e) With respect to each of the ERISA Plans that is subject to Title
IV of ERISA, the present value of accumulated benefit obligations under such
Plan, as determined by the Plan's actuary based upon the actuarial
assumptions used for funding purposes in the most recent actuarial report
prepared by such Plan's actuary with respect to such Plan, did not, as of its
latest valuation date, exceed the then current value of the assets of such
Plan allocable to such accumulated benefit obligations (excluding the Pullman
Inc. Non-contributory Pension Plan which is the responsibility of MAFCO
Consolidated Group, Inc., and the current status of which KREG is not aware).
(f) None of KOC, any ERISA Affiliate, any of the ERISA Plans, any
trust created thereunder, nor to the Knowledge of KREG, any trustee or
administrator thereof has engaged in a transaction or has taken or failed to
take any action in connection with which KOC or any ERISA Affiliate could be
subject to any material liability for either a civil penalty assessed
pursuant to Section 409 or 502(i) of ERISA or a tax imposed pursuant to
section 4975(a) or (b), 4976 or 4980B of the Code.
(g) All contributions and premiums which KOC or any ERISA Affiliate is
required to pay under the terms of each of the ERISA Plans and section 412 of
the Code, have, to the extent due, been paid in full or properly recorded on
the financial statements or records of KOC and none of the ERISA Plans or any
trust established thereunder has incurred any "accumulated funding
deficiency" (as defined in Section 302 of ERISA and section 412 of the Code),
whether or not waived, as of the last day of the most recent fiscal year of
each of the ERISA Plans ended prior to the date of this Agreement. No lien
has been imposed under section 412(n) of the Code or Section 302(f) of ERISA
on the assets of KOC or any ERISA Affiliate, and no event or circumstance has
occurred that is reasonably likely to result in the imposition of any such
lien on any such assets on account of any ERISA Plan.
(h) No ERISA Plan is a "multiemployer plan," as such term is defined
in Section 3(37) of ERISA.
(i) Each of the Plans has been operated and administered in all
material respects in accordance with applicable laws, including but not
limited to ERISA and the Code.
(j) With regard to each of the ERISA Plans that is intended to be
"qualified" within the meaning of Section 401(a) of the Code, the sponsor of
the Plan has applied for a currently effective determination letter from the
IRS stating that it is so qualified, and to the Knowledge of KREG, no event
has occurred which would affect such qualified status except for a recent
amendment to The Xxxx Company 401(k) Plan.
7
(k) Any fund established under an ERISA Plan that is intended to
satisfy the requirements of section 501(c)(9) of the Code has received an IRS
letter confirming satisfaction of such requirements, and no event has
occurred which, to the Knowledge of KREG, would affect such satisfaction.
(l) No amounts payable under any of the Plans or any other contract,
agreement or arrangement with respect to which KOC or any ERISA Affiliate may
have any liability could fail to be deductible for federal income tax
purposes by virtue of section 162(m) or section 280G of the Code.
(m) Except for the KREG Retiree Medical Plan, no Plan provides
benefits, including without limitation death or medical benefits (whether or
not insured), with respect to current or former employees of KOC or any ERISA
Affiliate after retirement or other termination of service (other than (i)
coverage mandated by applicable laws, (ii) death benefits or retirement
benefits under any "employee pension plan," as that term is defined in
Section 3(2) of ERISA, (iii) deferred compensation benefits accrued as
liabilities on the books of KOC or an ERISA Affiliate, or (iv) benefits, the
full direct cost of which is borne by the current or former employee (or
beneficiary thereof)).
(n) The consummation of the transactions contemplated by this
Agreement (including the Contribution) will not, either alone or in
combination with any other event, (i) entitle any current or former employee,
officer or director of KOC or any ERISA Affiliate except for employees
remaining with KREG after the Closing Date to continued participation in any
ERISA Plan, to severance pay, unemployment compensation or any other similar
termination payment, or (ii) accelerate the time of payment or vesting, or
increase the amount of or otherwise enhance any benefit due any such
employee, officer or director.
2.8 TAXES. (a) KOC and any affiliated group, within the meaning of
SECTION 1504 of the Code of which KOC is or has been a member (the "KREG
CONSOLIDATED GROUP"), has filed or caused to be filed in a timely manner (within
any applicable extension periods) all federal and state income and other
material Tax Returns required to be filed on or prior to the Closing Date, and
all such Tax Returns (subject to the Knowledge of the Individual Parties with
respect to the operations of KOC, KOC Employee Affiliates, Project Partnerships
and their respective lower tier Affiliates) are true, correct and complete in
all respects and were prepared in accordance with applicable laws and
regulations and properly reflect in all respects the Taxes of KOC and the KREG
consolidated group; (b) all Taxes shown to be due and payable on such Tax
Returns have been fully paid and discharged and all Taxes not yet due and
payable by KOC with respect to all periods prior to and through the date hereof
have been properly accrued on the books and records of KOC (subject to the
Knowledge of the Individual Parties with respect to the operations of KOC, KOC
Employee Affiliates, Project Partnerships and their respective lower tier
Affiliates) in accordance with generally accepted accounting principles and in
amounts sufficient for the payment of all unpaid Taxes required to be paid by
KOC with respect to such periods; (c) all Taxes that KOC is or was required to
withhold or collect have (subject to the
8
Knowledge of the Individual Parties with respect to the operations of KOC, KOC
Employee Affiliates, Project Partnerships and their respective lower tier
Affiliates) been duly and timely withheld or collected and, to the extent
required by law, have been paid to the proper governmental body or other person
or entity; (d) no liens for unpaid Taxes have been filed and no material claims
are being asserted in writing by any taxing authority with respect to any Taxes,
except as disclosed in SCHEDULE 2.8; (e) there are no outstanding agreements or
waivers extending the statutory period of limitations applicable to any federal
or state income or other material Tax Returns required to be filed with respect
to KOC; (f) there is no material unpaid tax deficiency, determination or
assessment currently outstanding against KOC, except as disclosed in SCHEDULE
2.8; (g) no amounts are or will be due to or from KOC, KOC Employee Affiliates,
Project Partnerships or their respective lower tier Affiliates under any tax
sharing or tax allocation agreement; (h) none of the Tax Returns of KOC is
currently being audited or examined by any taxing authority; (i) the
consolidated federal income Tax Returns of the affiliated group which includes
KOC have been audited by the Internal Revenue Service or are closed by the
applicable statute of limitations for all taxable periods through December 31,
1993; and (j) KOC has been a member of such groups since September 30, 1993.
True and complete copies of the "pro-forma" federal and state income tax returns
for the last three tax-years of KOC have been provided to KNHC. For purposes of
this SECTION 2.8 and SECTIONS 9.4, 9.5, 11.23, 11.24 and 11.25, references to
KOC shall include KOC and any Person in which KOC has a direct or indirect
ownership interest.
2.9 TRANSACTIONS WITH AFFILIATES. Other than as identified on SCHEDULE
2.9 and excluding the KOC Employee Affiliates, the Project Partnerships and
their respective lower tier Affiliates, (a) there are no outstanding amounts
payable to or receivable from, or advances by KOC or any Investment and none of
KOC or any Investment is otherwise a creditor of or debtor to, KREG, KHI, any
Affiliate thereof or any officer, director, employee of KREG, KHI or any
Affiliate thereof, and (b) except for the partnership agreements of the KOC
Employee Affiliates, the Vesting Agreements and Netting Agreements with
employees (subject to the Knowledge of the Individual Parties) none of KOC or
any Investment is a party to any transaction, agreement, arrangement or
understanding with KREG, KHI, any Affiliate thereof or any officer, director or
employee of KREG, KHI or any Affiliate thereof. Except for amounts relating to
the items set forth on SCHEDULE 2.9 or as otherwise provided in this Agreement,
prior to or contemporaneously with the Closing, any and all amounts owing under
any agreements, arrangements or understandings between KOC, KOC Employee
Affiliates, Project Partnerships or their respective lower tier Affiliates, on
the one hand, and KREG, KHI or any other Affiliate thereof, on the other hand,
shall be deemed an additional contribution of capital and all such agreements,
arrangements and understandings shall be terminated as of the Closing Date
without any further liability.
2.10 ENVIRONMENTAL LIABILITY. There are no legal, administrative,
arbitral or other proceedings, or, as to which KREG has received written notice,
any claims, actions, causes of action, private environmental investigations or
remediation activities or governmental investigations of any nature seeking to
impose on KOC or any Investment (excluding the
9
KOC Employee Affiliates, the Project Partnerships and their respective lower
tier Affiliates), or that could be expected to result in the imposition on KOC
or any Investment (excluding the KOC Employee Affiliates, the Project
Partnerships and their respective lower tier Affiliates) of, any liability or
obligation arising under any Environmental Laws, pending or, to the Knowledge of
KREG, and, subject to the Knowledge of the Individual Parties, threatened,
against KOC or any Investment (excluding the KOC Employee Affiliates, the
Project Partnerships and their respective lower tier Affiliates). Excluding the
KOC Employee Affiliates, the Project Partnerships and their respective lower
tier Affiliates, and, subject to the Knowledge of the Individual Parties, none
of KOC or any Investment is subject to any agreement (including any
indemnification agreement), order, judgment, decree, letter or memorandum by or
with any court, governmental authority, regulatory agency or third party
imposing any material liability or obligation pursuant to or under any
Environmental Law that would reasonably be expected to have a Material Adverse
Effect on KOC.
2.11 COMPLIANCE WITH APPLICABLE LAWS. KOC and the Investments (excluding
the KOC Employee Affiliates, the Project Partnerships and their respective lower
tier Affiliates) hold, subject to the Knowledge of the Individual Parties, all
material permits, licenses, variances, exemptions, orders, registrations and
approvals of all governmental entities which are necessary for the lawful
operation of the businesses of KOC and the Investments (excluding the KOC
Employee Affiliates, the Project Partnerships and their respective lower tier
Affiliates) (the "Permits"), and are not, subject to the Knowledge of the
Individual Parties, in material default under the Permits or under applicable
statutes, laws, ordinances, rules and regulations, except where the failure to
hold such Permits or to comply with such statutes, laws, ordinances, rules or
regulations or Permits would not, individually or in the aggregate, have a
Material Adverse Effect on KOC.
2.12 LITIGATION. Except as set forth on SCHEDULE 2.12, there is no
claim, litigation, action, suit or proceeding, administrative or judicial,
pending, or to the Knowledge of KREG and subject to the Knowledge of the
Individual Parties, threatened against KOC or the Investments, at law or in
equity, before any federal, state, local or foreign court or regulatory agency,
or other governmental authority which could have a Material Adverse Affect on
(i) the ability of KREG or KHI to perform their respective obligations under
this Agreement; (ii) the assets or the condition, financial or otherwise, or
operation of KOC or the Investments; or (iii) the consummation of the
transactions contemplated by this Agreement.
2.13 STATEMENTS TRUE AND CORRECT. Subject to the various qualifications
and exceptions made therein, no representation or warranty made herein by KHI or
KREG, or any statement, certificate, information, exhibit or instrument to be
furnished pursuant to this Agreement by KHI or KREG, or any of their respective
representatives (other than representatives who are the Individual Parties or
persons who will be employees or Affiliates of KOC, KOC Employee Affiliates,
Project Partnerships and their respective lower tier Affiliates after the
Closing Date) contains as of the date hereof or will contain as of the Closing
Date any untrue statement of material fact or omit or will omit to state
10
a material fact necessary to make the statements contained herein and therein
not misleading.
2.14 FINDERS' FEES. No investment banker, broker, finder or other
intermediary has been retained by or is authorized to act on behalf of KREG or
KHI who is entitled to any fee or commission upon consummation of the
transactions contemplated by this Agreement or referred to herein.
III. REPRESENTATIONS AND WARRANTIES OF KNHC AND KDC
As an inducement to KREG and KHI to enter into this Agreement and to sell
the Stock, KNHC and KDC hereby jointly and severally represent and warrant as
follows:
3.1 ORGANIZATION AND GOOD STANDING; QUALIFICATION. KDC is a limited
liability company and KNHC is a corporation, both of which are duly organized,
validly existing and in good standing under the laws of their states of
organization, with all requisite power and authority to own, operate and lease
their assets and properties and to carry on their business as currently
conducted.
3.2 AUTHORIZATION AND VALIDITY. Each of KNHC and KDC has all requisite
power to execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution, delivery and performance by KNHC and KDC
of this Agreement and the agreements provided for herein, and the consummation
by KNHC and KDC of the transactions contemplated hereby and thereby are within
KNHC's and KDC's powers and have been duly authorized by all necessary action on
the part of KNHC's Board of Directors and stockholders and KDC's management and
its members. This Agreement has been duly executed by KNHC and KDC. This
Agreement and all other agreements and obligations entered into and undertaken
in connection with the transactions contemplated hereby and thereby to which
KNHC or KDC is a party constitute, or upon execution will constitute, valid and
binding agreements of each of KNHC and KDC enforceable against it in accordance
with their respective terms, except as may be limited by bankruptcy or other
laws affecting creditors' rights generally, or by general equity principles, or
by public policy.
3.3 ABSENCE OF CONFLICTING AGREEMENTS OR REQUIRED CONSENTS. The
execution, delivery and performance of this Agreement by KNHC and KDC and
any other documents contemplated hereby (with or without the giving of
notice, the lapse of time, or both): (a) does not require the consent of any
governmental or regulatory body or authority or any other third party ; (b)
will not conflict with any provision of KNHC's or KDC's charter documents,
organization or operating agreements, or any agreement or understanding among
its members; (c) will not conflict with, result in a violation of, or
constitute a default under any law, ordinance, regulation, ruling, judgment,
order or injunction of any court or governmental instrumentality to which
KNHC or KDC is a party or by which KNHC or KDC or their respective
properties are subject or bound; (d) will not conflict with,
11
constitute grounds for termination of, result in a breach of, constitute a
default under, require any notice under, or accelerate or permit the
acceleration of any performance required by the terms of any agreement,
instrument, license or permit, material to this transaction, to which KNHC or
KDC is a party or by which KNHC or KDC or any of their respective properties
are bound except for such conflict, termination, breach or default, the
occurrence of which would not result in a Material Adverse Effect on KNHC or
KDC; and (e) will not create any Encumbrance or restriction upon any of the
assets or properties of KNHC or KDC.
3.4 LITIGATION. There is no claim, litigation, action, suit or
proceeding, administrative or judicial, pending, or to the Knowledge of KNHC or
KDC, threatened against KNHC or KDC, at law or in equity, before any federal,
state, local or foreign court or regulatory agency, or other governmental
authority which could have a Material Adverse Affect on (i) the ability of KNHC
or KDC to perform their respective obligations under this Agreement; (ii) the
assets or the condition, financial or otherwise, or operation of KNHC or KDC; or
(iii) the consummation of the transactions contemplated by this Agreement.
3.5 NO CONTINUING INTEREST. There are no agreements, commitments,
understandings, arrangements, facts or circumstances which create or would give
rise to the creation of any direct, contingent or other economic or beneficial
interest being held after the Closing by KOC, the KOC Employee Affiliates,
Project Partnerships or their respective lower tier Affiliates which relates
directly or indirectly to any of KREG's assets including, without limitation,
the development project at Bolsa Chica (collectively, the "Continuing Interests"
it being understood that interests in the Investments and interests in the
Project Partnerships are not Continuing Interests) and to the extent any such
Continuing Interests exist, KDC, KOC, KOC Employee Affiliates, Project
Partnerships and their respective lower tier Affiliates disclaim any legal or
beneficial interest in such Continuing Interests and agree that if they receive
any proceeds with respect thereto, to promptly remit such proceeds to KREG.
3.6 STATEMENTS TRUE AND CORRECT. No representation or warranty made
herein by KNHC or KDC, or any statement, certificate, information, exhibit or
instrument to be furnished pursuant to this Agreement by KNHC or KDC or any of
their respective representatives, contains as of the date hereof or will contain
as of the Closing Date any untrue statement of material fact or omit or will
omit to state a material fact necessary to make the statements contained herein
and therein not misleading.
3.7 FINDER'S FEES. No investment banker, broker, finder or other
intermediary has been retained by or is authorized to act on behalf of KNHC or
KDC who is entitled to any fee or commission upon consummation of the
transactions contemplated by this Agreement or referred to herein.
12
IV. COVENANTS OF KREG AND KHI
4.1 OTHER OFFERS. Neither KREG nor KHI shall directly or indirectly
solicit or initiate any negotiations or discussions with respect to any offer or
proposal to acquire all or a substantial portion of the business, properties or
capital stock of KOC, whether by merger, consolidation, share exchange, business
combination, purchase of assets, sale of capital stock or otherwise; provided,
however, that the foregoing shall in no way limit KREG or KHI with regard to
unsolicited offers received following the public announcement of the
transactions contemplated hereby a copy of which is attached hereto as EXHIBIT
B. Following the receipt of any such offer which it determines in good faith
following advice from its financial and legal advisors to provide superior value
to KHI to the transactions contemplated by this Agreement, KREG shall promptly
provide written notice to KNHC and KDC of the terms of such offer and shall,
thereafter, have the right, exercisable in its sole discretion upon two (2) days
prior written notice to KNHC and KDC, to terminate this Agreement at any time
prior to the expiration of thirty (30) days from the date this Agreement is
executed (unless such notice is delivered on the thirteeth (30th) day in which
case the termination would occur on the thirty-second (32nd) day); provided that
if KNHC or KDC notifies KREG in writing prior to the date of such termination
that it is interested in making a higher offer, KREG will extend the termination
date for an additional fifteen (15) days and, to the extent necessary, the
Closing Date would also be extended and, unless otherwise agreed to in writing
by the parties hereto, at the end of such fifteen (15) day period KREG shall
either close the transactions contemplated herein or terminate this Agreement.
Any termination of this Agreement by KREG pursuant to this SECTION 4.1 shall be
without any liability or obligation on the part of KREG or any of its Affiliates
to KNHC or KDC or any of their Affiliates, subject only to the requirement that
KREG deliver the following to KNHC not later than on the date of such
termination:
(a) the amount of the Initial Consideration in immediately available
funds, plus interest thereon from the date hereof at a rate equal to 5% per
annum;
(b) $2 million in immediately available funds; and
(c) the aggregate amount of up to $ 500,000 for the legal,
accounting or consultant fees incurred by KNHC, KDC or the members thereof
in connection with the transactions contemplated hereby for the services of
Allen, Matkins, Xxxx, Xxxxxx & Xxxxxxx, LLP, Skadden, Arps, Slate, Xxxxxxx
& Xxxx LLP, Xxxxx & Xxxxx LLP and Xxxxxx Xxxxxxxx LLP during the period of
February 2, 1998 through the date of any such termination, subject to
KREG's prior receipt of invoices therefor.
In the event KREG terminates this Agreement pursuant to the provisions of
this SECTION 4.1, Xxxxxx X. Xxxx shall have the immediate right, upon delivery
of written notice to terminate his employment agreement and his covenant-not-
to-compete with KREG, subject to the cancellation of all of his outstanding
options (including vested options) for KREG common stock and the surrender of
any shares (or the sales proceeds therefrom)
13
which were issued upon the exercise of any option, which termination,
cancellation and surrender shall provide for a complete waiver and release of
KREG with respect to the payment of any severance or other form of compensation.
In addition, the license granted to KREG to use the "Xxxx" name shall be
terminated thirty (30) days thereafter, other than with respect to the use of
the "Xxxx" name from a historical perspective. For a period of thirty (30) days
following any such termination of his employment, Xxxxxx X. Xxxx agrees to
cooperate with KREG with respect to the orderly transition of his prior powers
and responsibilities to the successor Chairman of the Board and Chief Executive
Officer.
4.2 CONDUCT OF BUSINESS BY KOC. Except as otherwise expressly
contemplated by this Agreement or as consented to by KNHC in writing, such
consent not to be unreasonably withheld or delayed, during the period from the
date of this Agreement to the Closing Date, neither KREG nor KHI shall take any
action to cause KOC and the Investments to fail to carry on their respective
businesses in the ordinary course consistent with past practice and in
compliance in all material respects with all applicable laws and regulations and
shall use reasonable efforts to preserve intact their current business
organizations, use reasonable efforts to keep available the services of their
current officers and other employees and use reasonable efforts to preserve
their relationships with those persons having business dealings with them .
Without limiting the generality of the foregoing, during the period from the
date of this Agreement to the Closing Date, neither KREG nor KHI shall cause or
permit KOC or any of the Investments to:
(a) declare, set aside or pay any dividends on, make any other
distributions or payments in respect of, or enter into any agreement with
respect to the voting of, any of its capital stock or any other securities
thereof or any rights, warrants or options to acquire any such shares or
other securities;
(b) amend its certificate of incorporation, by-laws, partnership
agreement or other comparable organizational documents;
(c) acquire any business (whether by merger, consolidation, purchase
of assets or otherwise) or acquire any equity interest in any person not an
affiliate (whether through a purchase of stock, establishment of a joint
venture or otherwise), except in the ordinary course of business of
establishing Project Partnerships, consistent with past practice;
(d) sell, lease, joint venture, license, mortgage or otherwise
encumber or subject to any Lien or otherwise dispose of any of its material
properties or assets, except in the ordinary course of business of the
Project Partnerships, consistent with past practice, provided that in no
event shall KOC or any of the Investments enter into or modify any lease or
occupancy agreement for office space occupied by KOC or any of the
Investments;
(e) except for borrowings under existing credit facilities or lines
of credit, incur any indebtedness for borrowed money or issue any debt
securities or assume,
14
guarantee or endorse, or otherwise become responsible for the obligations
of any person, or make any loans, advances or capital contributions to, any
person other than its wholly owned subsidiaries, except in the ordinary
course of business of the Project Partnerships, consistent with past
practice;
(f) change its methods of accounting (or underlying assumptions) in
effect at December 31, 1997, except as required by changes in GAAP or law
or regulation, or change any of its methods of reporting income and
deductions for federal income Tax purposes from those employed in the
preparation of the federal income Tax returns of KOC for the taxable years
ending December 31, 1996, except as required by changes in law or
regulation;
(g) create, renew, amend, terminate or cancel, or take any other
action that could reasonably be expected to result in the creation,
renewal, amendment, termination or cancellation, of any material contract
of KOC or any Investment, except in the ordinary course of business of the
Project Partnerships, consistent with past practice;
(h) grant to any such current or former director, executive officer
or other employee any increase in severance or termination pay, or amend or
adopt any employment, deferred compensation, consulting, severance,
termination or indemnification agreement with any such current or former
director, executive officer or employee;
(i) amend or modify any of the Netting Agreements or Vesting
Agreements or waive compliance with any of the material terms of any of
these agreements; or
(j) authorize, or commit or agree to take, any of the foregoing actions.
4.3 NOTICE OF CERTAIN EVENTS. KREG and KHI shall promptly notify KNHC
and KDC of:
(a) any notice or other communication from any Person or entity
alleging that the consent of such Person or entity is or may be required in
connection with the transactions contemplated by this Agreement;
(b) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions
contemplated by this Agreement; or
(c) any actions, suits, claims, investigations or proceedings
commenced or threatened against, relating to or involving or otherwise
affecting the transactions contemplated hereby.
15
4.4 CONSUMMATION OF AGREEMENT. Subject to the terms and conditions
hereof, KREG and KHI will take all action reasonably necessary to cause the
consummation of the transactions contemplated by this Agreement in accordance
with their terms and conditions and take all corporate and other action
necessary to approve the transactions contemplated herein.
V. COVENANTS OF KNHC AND KDC
KNHC and KDC agree that between the date hereof and the Closing:
5.1 CONSUMMATION OF AGREEMENT. Subject to the terms and conditions
hereof, KNHC and KDC will take all action reasonably necessary to cause the
consummation of the transactions contemplated by this Agreement in accordance
with their terms and conditions and take all corporate and other action
necessary to approve the transactions contemplated herein.
5.2 NOTICE OF CERTAIN EVENTS. KNHC and KDC shall promptly notify KREG
and KHI of:
(a) any notice or other communication from any Person or entity
alleging that the consent of such Person or entity is or may be required in
connection with the transactions contemplated by this Agreement;
(b) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions
contemplated by this Agreement; or
(c) any actions, suits, claims, investigations or proceedings
commenced or threatened against, relating to or involving or otherwise
affecting the transactions contemplated hereby.
5.3 RESPONSIBILITY FOR ACCRUED EMPLOYEE BENEFITS. KDC hereby covenants
and agrees that it will take whatever steps are necessary to cause to be paid
when due any accrued benefits for which KOC or any other KREG affiliated entity
might have any liability arising from any Plan that has been disclosed to KDC
on or prior to the date of this Agreement to the extent that such liabilities
(a) relate to any employees of KOC or the Investments or any employees of KREG
who KDC has agreed will become employees of KOC or the Investments on or after
the Closing Date and (b) have been properly reflected on the Balance Sheet in
accordance with GAAP and are otherwise consistent with representations made by
KREG and KHI pursuant to this Agreement. KNHC and KDC acknowledge that the
purpose and intent of this covenant is to assure that KREG and its Affiliates
shall have no responsibility whatsoever at any time on or after the Closing
Date with respect to any such liabilities. KREG and KHI shall retain all
liabilities with respect
16
to the foregoing matters to the extent that they relate to any employees of
KREG and KHI who will not be employed by KDC after the Closing.
5.4 MEDICAL PREMIUMS AND COSTS. KDC shall for such period as is
necessary (but not beyond December 31, 1998) for it to establish a separate
health insurance program, promptly reimburse KREG with respect to any and all
health insurance premiums and other expenditures made on behalf of employees of
KOC or its Affiliates from and after the Closing Date.
5.5 RELEASE OF GUARANTEES. KNHC and KDC shall use reasonable efforts to
obtain full releases from all obligations (the "RELEASES") under the corporate
guarantees and other contractual obligations set forth on SCHEDULE 5.5 (the
"GUARANTEES") which represent all of the Guarantees to which KREG or any of its
Affiliates are parties as of the date hereof and, except to the extent of any
Releases, as of the Closing Date.
VI. CONDITIONS TO OBLIGATIONS OF KREG AND KHI
The obligations of KREG and KHI to sell and transfer the Stock pursuant
to this Agreement are subject to the satisfaction, at or prior to Closing, of
each of the following conditions, any one or more of which may be waived at the
sole option of KREG or KHI:
6.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of KNHC and KDC contained herein shall have been true and correct in all
material respects when initially made and shall be true and correct in all
material respects as of the Closing Date.
6.2 COVENANTS. KNHC and KDC shall have performed and complied in all
material respects with all covenants required by this Agreement to be performed
and complied with by KNHC and KDC prior to the Closing Date.
6.3 PROCEEDINGS. No action, proceeding or order by any court or other
governmental agency or body shall have been instituted, threatened whether
orally or in writing, or entered concerning KREG, KHI, KOC or any of their
respective Affiliates or their respective business or restraining any of the
transactions contemplated hereby.
6.4 GOVERNMENT APPROVALS. All filings with any governmental authority or
agency or other Person relating to the consummation of the transactions
contemplated herein shall have been made and no action or proceeding shall have
been instituted or threatened which could materially affect, restrain or
prohibit any of the transactions contemplated hereby.
6.5 CLOSING DELIVERIES. KREG and KHI shall have received all documents,
certificates, instruments, assignments and agreements referred to in SECTION
8.2, duly executed and delivered in form reasonably satisfactory to KREG and
KHI.
17
6.6 OTHER DOCUMENTS. KREG and KHI shall have received all such other
certificates, instruments or documents that are reasonably required by KREG, KHI
or their counsel in order to consummate the transactions contemplated herein,
including but not limited to those documents and required deliveries set forth
in ARTICLE VIII.
VII. CONDITIONS TO OBLIGATIONS OF KNHC
The obligation of KNHC to acquire the Stock pursuant to this Agreement is
subject to the satisfaction, at or prior to Closing, of each of the following
conditions, any one or more of which may be waived at the sole option of KNHC:
7.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of KREG and KHI contained herein shall have been true and correct in all
material respects when initially made and shall be true and correct in all
material respects as of the Closing Date.
7.2 COVENANTS. KREG and KHI shall have performed and complied in all
material respects with all covenants required by this Agreement to be performed
and complied with by KREG and KHI, respectively, prior to the Closing Date.
7.3 PROCEEDINGS. No action, proceeding or order by any court or other
governmental agency or body shall have been instituted, threatened whether
orally or in writing, or entered concerning KOC or its business or restraining
any of the transactions contemplated hereby.
7.4 GOVERNMENT APPROVALS AND REQUIRED CONSENTS. The Required Consents
and Project Consents shall have been obtained and all necessary consents of and
filings with any governmental authority or agency or other Person relating to
the consummation of the transactions contemplated hereby shall have been
obtained and made by KNHC and no action or proceeding shall have been
instituted or threatened which could materially affect, restrain or prohibit any
of the transactions; provided, that KNHC may at its election defer the Closing
Date for up to thirty (30) days in order to obtain the Required Consents and/or
Project Consents.
7.5 CLOSING DELIVERIES. KNHC shall have received all documents,
certificates, instruments, assignments and agreements referred to in SECTION
8.1, duly executed and delivered in form reasonably satisfactory to KNHC.
7.6 OTHER DOCUMENTS. KNHC and KDC shall have received all such other
certificates, instruments or documents that are reasonably required by KNHC, KDC
or their counsel in order to consummate the transactions contemplated herein,
including but not limited to those documents and required deliveries set forth
in ARTICLE VIII.
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VIII. CLOSING DELIVERIES BY THE PARTIES
8.1 DELIVERIES OF KREG AND KHI. At or prior to the Closing Date, KREG
and KHI shall deliver to KNHC the following, all of which shall be in a form
reasonably satisfactory to KNHC:
(a) a certificate representing the Stock, together with accompanying
signed stock powers or instruments of assignment, duly endorsed in blank
for the transfer of the Stock to KNHC;
(b) all of KOC's and the Investments' books and records, including
without limitation the certificates evidencing KOC's ownership interest in
the Investments and their respective minute books, accounting records, tax
records and other corporate records;
(c) a certificate of the Chief Financial Officer of KREG and the
Chief Financial Officer of KHI, dated the Closing Date, certifying that the
representations and warranties of KREG and KHI contained in this Agreement
are true and correct on and as of the Closing Date, which certificate shall
include a complete and accurate copy of the resolutions evidencing the due
authorization of the execution, delivery and performance of this Agreement
by KREG and KHI;
(d) a certificate of the Chief Financial Officer of KREG and the
Chief Financial Officer of KHI dated the Closing Date, (i) as to the
performance of and compliance in all material respects by KREG and KHI with
all covenants contained in this Agreement on and as of the Closing Date and
(ii) certifying that all conditions precedent required by KREG and KHI to
be satisfied shall have been satisfied;
(e) certificates of KREG and KHI certifying the incumbency of
officers and other duly authorized agents of KREG and KHI and as to the
signatures of such officers and agents who have executed documents
delivered at the Closing on behalf of KREG and KHI;
(f) executed copies of any Required Consents;
(g) an agreement providing for the termination of (i) the license
granted to KREG to use the "Xxxx" name other than with respect to the use
of the "Xxxx" name from a historical perspective, such termination to be
implemented not later than thirty (30) days after the Closing, and (ii) the
covenant-not-to-compete by Xxxxxx X. Xxxx, such termination to be effective
immediately;
(h) assignments of all of KREG's and KHI's right title and interest
in and to (i) all items of personal property of KREG and KHI other than the
items of personal property set forth on SCHEDULE 8.1(h), and (ii) all
agreements running in
19
favor of such parties in connection with the operation of the Project
Partnerships or any pre-development activities in relation to future
project partnerships;
(i) the resignations effective as of the Closing Date from Xxxxxxx
X. Xxxxxx, Xxxxxxxxx Xxxx and Xxxxxx Xxxxxxx in each of their respective
capacities as officers or directors of KOC or any of the Investments
provided that Xxxxxx Xxxxxxx shall be available for consultation as
reasonably requested by KDC until December 31, 1998, however, such
availability shall not exceed four (4) hours per week after August 31,
1998; and
(j) such other instrument or instruments executed by KREG or KHI as
shall be necessary or appropriate, as KNSH and KDC or their counsel shall
reasonably request, to carry out and effect the purpose and intent of this
Agreement and the transactions contemplated hereby and, to the extent
necessary, KREG and KHI shall execute and deliver any such instruments on a
post-Closing basis.
8.2 DELIVERIES OF KNHC. At or prior to the Closing Date, KNHC shall
deliver to KREG and KHI the following, all of which shall be in a form
reasonably satisfactory to KREG and KHI:
(a) a certificate of KNHC and KDC, dated the Closing Date,
certifying that the representations and warranties of KNHC and KDC
contained in this Agreement are true and correct on and as of the Closing
Date, which certificate shall include a complete and accurate copy of the
resolutions evidencing the due authorization of the execution, delivery and
performance of this Agreement by KNHC and KDC;
(b) a certificate of KNHC and KDC, dated the Closing Date, (i) as
to the performance of and compliance in all material respects by KNHC and
KDC with all covenants contained in this Agreement on and as of the Closing
Date and (ii) certifying that all conditions precedent required by KNHC
and KDC to be satisfied shall have been satisfied;
(c) certificates of KNHC and KDC certifying the incumbency of
officers, managers and other duly authorized agents of KNHC and KDC and as
to the signatures of such officers, managers and agents who have
executed documents delivered at the Closing on behalf of KNHC and KDC;
(d) the Closing Consideration and 1998 Activity Consideration;
(e) executed copies of the Releases of Guarantees and the Project
Consents;
(f) the Letter of Credit;
20
(g) resignations effective as of the Closing Date from Xxxxxx X.
Xxxx, Xxxxxxx X. Xxxxxxx, Xxx Xxxxx, Xxxxxx Xxxxxxxxx, Xxxx Xxxxx and Xxxx
Xxxxxxxx collectively, (the "KNHC Individuals") in each of their respective
capacities as officers, directors or employees of KREG and its Affiliates;
(h) the written agreements of the KNHC Individuals to the
termination of their respective employment agreements with KREG and the
cancellation of all of their outstanding options (including vested options)
for KREG common stock and the surrender of any shares (or the sales
proceeds therefrom) which were issued upon the exercise of any option,
which terminations, cancellations and surrender shall provide for a
complete waiver and release of KREG with respect to the payment of any
severance or other form of compensation;
(i) the written agreement of Xxx Xxxxx to the termination of his
consulting agreement with KREG and the cancellation of all of his
outstanding options (including vested options) for KREG common stock and
the surrender of any shares (or the sales proceeds therefrom) which were
issued upon the exercise of any option, which termination, cancellation and
surrender shall provided for a complete waiver and release of KREG and its
Affiliates with respect to the payment of any severance or other form of
compensation;
(j) a sublease agreement with respect to the office space, two (2)
parking garage spaces and the amenities (including, but not limited to
copiers, telephones, fax machines and conference rooms) currently being
occupied and enjoyed by the six (6) KREG employees who will continue in the
employ of KREG or its Affiliates following the Closing, which sublease
shall be at a rental rate equal to the amount currently charged for such
space and amenities, and which sublease shall have a term expiring August
31, 1998 unless sooner terminated in the sole discretion of KREG and
without payment of any premium or penalty, subject to fifteen (15) days
prior written notice to KDC; and
(k) such other instrument or instruments executed by KNHC or KDC as
shall be necessary or appropriate, as KREG and KHI or their counsel shall
reasonably request, to carry out and effect the purpose and intent of this
Agreement and the transactions contemplated hereby and, to the extent
necessary, KNHC and KDC shall execute and deliver any such instruments on a
post-Closing basis.
IX. INDEMNIFICATION
9.1 INDEMNIFICATION BY KDC. Subject to the terms and conditions of
this ARTICLE IX, KDC hereby agrees to indemnify, defend and hold harmless KREG,
KHI and their respective directors, officers (other than the KNHC Individuals),
shareholders, employees, agents, attorneys, consultants and Affiliates from and
against all losses, claims, obligations, demands, assessments, penalties,
liabilities, costs, damages, attorneys' fees and expenses
21
(including, without limitation, all costs of experts and all costs incidental to
or in connection with any appellate process) (collectively, "DAMAGES") asserted
against or incurred by such individuals and/or entities arising out of, in
connection with or resulting from:
(a) a breach by KNHC or KDC of any representation or warranty
(without giving effect to any "material adverse effect" qualifier or
qualifier of like import contained as part of any such representation or
warranty that was breached) or covenant of KNHC or KDC contained in this
Agreement or in any schedule, exhibit, certificate or other instrument
delivered pursuant to or as a part of this Agreement;
(b) any act or omission or strict liability relating to the business
or operations of KOC or its Affiliates occurring on or after the Closing
Date; and
(c) any acts or omissions of KOC or its Affiliates that result in any
action being threatened or pursued against KREG or any of its Affiliates
pursuant to any of the Guarantees.
9.2 INDEMNIFICATION BY KREG. Subject to the terms and conditions of this
ARTICLE IX, KREG hereby agrees to indemnify, defend and hold harmless KDC, KNHC
and their respective managers, members, directors, officers, shareholders,
employees, agents, attorneys, consultants and Affiliates from and against all
Damages asserted against or incurred by such individuals and/or entities
arising out of, in connection with or resulting from (a) a breach by KREG or KHI
of any representation or warranty (without giving effect to any "material
adverse effect" qualifier or qualifier of like import contained as part of any
such representation or warranty that was breached) or covenant of KREG or KHI
contained in this Agreement or in any schedule, exhibit, certificate or other
instrument delivered pursuant to or as a part of this Agreement; (b) the case of
XXXXXXX CORPORATION V. WT/HRC CORPORATION AND KREG-OC, INC. filed March 25,
1997, Circuit Court, Xxxx County, Illinois; or (c) the Pullman Inc. Non-
contributory Pension Plan.
9.3 CLAIMS. All claims for indemnification pursuant to this ARTICLE IX
shall be asserted and resolved as follows:
(a) any party claiming indemnification pursuant to this ARTICLE IX
(an "INDEMNIFIED PARTY") shall promptly (and, in any event at least ten
days prior to the due date for any responsive pleadings, filings or other
documents) (i) notify the party for whom indemnification is sought (the
"INDEMNIFYING PARTY") of any third -party claim or claims asserted against
the Indemnified Party (a "THIRD PARTY CLAIM") that could give rise to a
right of indemnification pursuant to this ARTICLE IX and (ii) transmit to
the Indemnifying Party a written notice ("CLAIM NOTICE") describing in
reasonable detail the nature of the Third Party Claim, a copy of all papers
served with respect to such claim (if any), an estimate of the amount of
Damages attributable to the Third Party Claim and the basis of the
Indemnified Party's request for indemnification under this Agreement. The
failure to promptly deliver a Claim Notice shall not relieve any
Indemnifying Party of its obligations to any
22
Indemnified Party with respect to the related Third Party Claim except to
the extent that the resulting delay is materially prejudicial to the
defense of such claim. Within 30 days after receipt of any Claim Notice
(the "ELECTION PERIOD"), the Indemnifying Party shall notify the
Indemnified Party (x) whether the Indemnifying Party disputes its potential
liability to the Indemnified Party under this ARTICLE IX with respect to
such Third Party Claim and (y) whether the Indemnifying Party desires, at
the sole cost and expense of such Indemnifying Party, to defend the
Indemnified Party against such Third Party Claim;
(b) If the Indemnifying Party notifies the Indemnified Party within
the Election Period that the Indemnifying Party elects to assume the
defense of the Third Party Claim, then the Indemnifying Party shall have
the right to defend, at its sole cost and expense, with counsel reasonably
acceptable to such Indemnified Party, such Third Party Claim by all
appropriate proceedings, which proceedings shall be prosecuted diligently
by the Indemnifying Party to a final conclusion or settled at the
discretion of the Indemnifying Party in accordance with this SECTION
9.3(b). Except as set forth in SECTION 9.3(f) hereof, the Indemnifying
Party shall have full control of such defense and proceedings, including
any compromise or settlement thereof. The Indemnified Party is hereby
authorized, at the sole cost and expense of the Indemnifying Party (but
only if the Indemnified Party is entitled to indemnification hereunder), to
file, during the Election Period, any motion, answer or other pleadings
that the Indemnified Party shall deem necessary or appropriate to protect
its interests or those of the Indemnifying Party and not prejudicial to the
Indemnifying Party. If requested by the Indemnifying Party, the
Indemnified Party agrees, at the sole cost and expense of the Indemnifying
Party, to cooperate with the Indemnifying Party and their counsel in
contesting any Third Party Claim that the Indemnifying Party elects to
contest, including, without limitation, the making of any related
counterclaim against the Person asserting the Third Party Claim or any
cross -complaint against any Person. The Indemnified Party may participate
in, but not control, any defense or settlement of any Third Party Claim
controlled by the Indemnifying Party pursuant to this SECTION 9.3(b) and
shall bear its own costs and expenses with respect to such participation;
provided, however, that if the named parties to any such action (including
any impleaded parties) include both the Indemnifying Party and the
Indemnified Party, and the Indemnified Party has been advised by counsel
that there may be one or more legal defenses available to it that are
different from or additional to those available to the Indemnifying Party,
then the Indemnified Party may employ separate counsel at the expense of
the Indemnifying Party, and upon written notification thereof, the
Indemnifying Party shall not have the right to assume the defense of such
action on behalf of the Indemnified Party; provided further that the
Indemnifying Party shall not, in connection with any one such action or
separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances,
be liable for the reasonable fees and expenses of more than one separate
firm of attorneys at any time for the Indemnified Party, which firm shall
be designated in writing by the Indemnified Party. Notwithstanding the
foregoing, the Indemnifying Party shall be prohibited from
23
confessing or settling any criminal allegations brought against the
Indemnified Party without the express written consent of the Indemnified
Party.
(c) If the Indemnifying Party fails to notify the Indemnified Party
within the Election Period that the Indemnifying Party elects to defend the
Indemnified Party pursuant to SECTION 9.3(b), or if the Indemnifying Party
elects to defend the Indemnified Party pursuant to SECTION 9.3(b) but fails
diligently and promptly to prosecute or settle the Third Party Claim, then
the Indemnified Party shall have the right to defend, at the sole cost and
expense of the Indemnifying Party (if the Indemnified Party is entitled to
indemnification hereunder), the Third Party Claim by all appropriate
proceedings, which proceedings shall be promptly and vigorously prosecuted
by the Indemnified Party to a final conclusion or settled. The Indemnified
Party shall have full control of such defense and proceedings, provided,
however, that the Indemnified Party may not enter into, without the
Indemnifying Party's consent, which shall not be unreasonably withheld, any
compromise or settlement of such Third Party Claim. Notwithstanding the
foregoing, if the Indemnifying Party has delivered a written notice to the
Indemnified Party to the effect that the Indemnifying Party disputes their
potential liability to the Indemnified Party under this ARTICLE IX and if
such dispute is resolved in favor of the Indemnifying Party, the
Indemnifying Party shall not be required to bear the costs and expenses of
the Indemnified Party's defense pursuant to this SECTION 9.3 or of the
Indemnifying Party's participation therein at the Indemnified Party's
request, and the Indemnified Party shall reimburse the Indemnifying Party
in full for all reasonable costs and expenses of such litigation. The
Indemnifying Party may participate in, but not control, any defense or
settlement controlled by the Indemnified Party pursuant to this SECTION
9.3(c), and the Indemnifying Party shall bear its own costs and expenses
with respect to such participation; provided, however, that if the named
parties to any such action (including any impleaded parties) include both
the Indemnifying Party and the Indemnified Party, and the Indemnifying
Party has been advised by counsel that there may be one or more legal
defenses available to it that are different from or additional to those
available to the Indemnified Party, then the Indemnifying Party may employ
separate counsel and upon written notification thereof, the Indemnified
Party shall not have the right to assume the defense of such action on
behalf of the Indemnifying Party.
(d) In the event any Indemnified Party should have a claim against
any Indemnifying Party hereunder that does not involve a Third Party Claim,
the Indemnified Party shall transmit to the Indemnifying Party a written
notice (the "INDEMNITY NOTICE") describing in reasonable detail the nature
of the claim, an estimate of the amount of damages attributable to such
claim and the basis of the Indemnified Party's request for indemnification
under this Agreement. If the Indemnifying Party does not notify the
Indemnified Party within thirty (30) days from its receipt of the Indemnity
Notice that the Indemnifying Party disputes such claim, the claim specified
by the Indemnified Party in the Indemnity Notice shall be deemed a
liability of the Indemnifying Party hereunder. If the Indemnifying Party
has timely
24
disputed such claim, as provided above, such dispute shall be resolved by
litigation in an appropriate court of competent jurisdiction if the parties
do not reach a settlement of such dispute within thirty (30) days after
notice of a dispute is given.
(e) Payments of all amounts owing by any Indemnifying Party pursuant
to this ARTICLE IX relating to a Third Party Claim shall be made within
thirty (30) days after the latest of (i) the settlement of such Third Party
Claim, (ii) the expiration of the period for appeal of a final adjudication
of such Third Party Claim, or (iii) the expiration of the period for appeal
of a final adjudication of the Indemnifying Party's liability to the
Indemnified Party under this Agreement. Payments of all amounts owing by
the Indemnifying Party pursuant to SECTION 9.3(d) shall be made within ten
(10) days after the later of (i) the expiration of the 30 -day Indemnity
Notice period or (ii) the expiration of the period for appeal of a final
adjudication of the Indemnifying Party's liability to the Indemnified Party
under this Agreement.
(f) The Indemnifying Party shall provide the Indemnified Party with
written notice of any firm offer that is made to settle or compromise a
Third Party Claim against an Indemnified Party. If a firm offer is made to
settle such a claim solely by the payment of money damages and the
Indemnifying Party notifies the Indemnified Party in writing that the
Indemnifying Party agrees to such settlement, but the Indemnified Party
elects not to accept and agree to it, the Indemnified Party may continue to
contest or defend such Third Party Claim and, in such event, the total
maximum liability of the Indemnifying Party to indemnify or otherwise
reimburse the Indemnified Party hereunder with respect to such a claim
shall be limited to and shall not exceed the amount of such settlement
offer, plus reasonable out -of -pocket costs and reasonable expenses
(including reasonable attorneys' fees and disbursements) to the date of
notice that the Indemnifying Party desired to accept such settlement.
(g) Notwithstanding any provision herein to the contrary, the
obligation of an Indemnifying Party to provide indemnification to an
Indemnified Party for breach of any representation or warranty shall not
take effect unless and until the Damages asserted against or incurred in
the aggregate and on a collective basis by the Indemnified Parties pursuant
to either SECTION 9.1 or 9.2 (as applicable) as a result of such a breach
or breaches exceeds $15,000.
9.4 TAX INDEMNIFICATION.
(a) Notwithstanding anything in this Agreement to the contrary, each
of KREG and KHI shall indemnify KNHC, KDC and their Affiliates (including
KOC) and hold them harmless for, from and against (i) all liability for all
Taxes of KOC for all taxable periods ending on or before the Closing Date and
the portion ending on the Closing Date of any taxable period that includes
(but does not end on) the Closing Date ("PRE-CLOSING TAX PERIOD"), including,
without limitation, any liability for any Taxes imposed pursuant to Treasury
Regulation SECTION 1.1502-6 as a result of being a member of the affiliated
group, within the meaning of SECTION 1504 of the Code, of which KREG is a
member and liabilities for
25
any Taxes imposed in respect of the matters set forth in SCHEDULE 2.8, (ii)
assuming a valid, timely and effective election under Sections 338(g) and
338(h)(10) of the Code is made, as contemplated by SECTION 11.21 of this
Agreement (the "ELECTION"), all liability for Taxes accruing on or before the
Closing Date which result from (A) the Election, (B) any comparable elections
under state or local tax laws and (C) any deemed assets sales resulting from
the Election in any jurisdictions, including jurisdictions in which KOC files
its Tax Returns on a separate company basis and (iii) any liability for Taxes
attributable to a breach by KREG or KHI of any of its obligations under this
Agreement.
(b) KDC shall indemnify KREG and its Affiliates and hold them harmless
for, from and against all liability for Taxes of KOC for any taxable period
commencing after the Closing Date.
(c) In the case of any taxable period that includes (but does not end on)
the Closing Date ("Straddle Period"), the Taxes of KOC for the Pre-Closing Tax
Period shall be computed as if such taxable period ended on and included the
Closing Date (and included any income from any deemed assets sale).
9.5 PROCEDURES RELATING TO INDEMNIFICATION OF TAX CLAIMS.
(a) If a claim for Taxes shall be made by any taxing authority in writing,
which, if successful, might result in an indemnity payment pursuant to SECTION
9.4, the Indemnified Party shall promptly notify the Indemnifying Party in
writing of such claim (a "TAX CLAIM"). If notice of a Tax Claim (a "TAX
NOTICE") is not given to the Indemnifying Party within a reasonably sufficient
period of time to allow the Indemnifying Party effectively to contest such Tax
Claim, or in reasonable detail to apprize the Indemnifying Party of the nature
of the Tax Claim, taking into account the facts and circumstances with respect
to such Tax Claim, the Indemnifying Party shall not be liable to the Indemnified
Party or any of its affiliates to the extent that the Indemnifying Party's
position is actually prejudiced as a result thereof.
(b) With respect to any Tax Claim which might result in an indemnity
payment to KNHC, KDC or any of their Affiliates pursuant to SECTION 9.4 (other
than a Tax Claim relating to Taxes of KOC for a Straddle Period), and provided
that KREG shall first have admitted its liability to KNHC, KDC or any of their
Affiliates as the case may be, KREG shall control all proceedings taken in
connection with such Tax Claim (including, without limitation, selection of
counsel) and, without limitation of the foregoing, may in its sole discretion
and at its sole expense pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with any taxing authority with respect
thereto, and may, in its sole discretion, either pay the Tax claimed and xxx for
a refund where applicable law permits such refund suits or contest such Tax
Claim in any permissible manner. In no case shall KNHC, KDC or KOC settle or
otherwise compromise any Tax Claim referred to in the preceding sentence without
KREG's prior written consent. KNHC, KDC, KOC and their affiliates shall
cooperate with KREG in contesting such Tax Claim, which cooperation shall
include, without limitation, the reasonable retention and (upon KREG's
26
request) the provision to KREG of records and information which are
reasonably relevant to such Tax Claim, and making employees reasonably
available to provide additional information or explanation of any material
provided hereunder or to testify at proceedings relating to such Tax Claim,
all at KREG's expense.
(c) The contest of any Tax Claim that relates to Taxes of KOC for a
Straddle Period shall be controlled by KDC (or, if required by law, KNHC) and
KREG agrees, and agrees to cause its affiliates, to cooperate with KNHC, KDC
(and their Affiliates) in pursuing such contest. KREG shall be kept informed of
any such contest and shall have the right to participate, or have its legal
counsel or advisors participate, at its expense. KDC shall not settle any claim
with any taxing authority with respect to taxes for a Straddle Period unless (i)
KREG shall have agreed in writing to such settlement, such agreement not to be
unreasonably withheld, and (ii) KREG and KDC shall have agreed on an
apportionment of the proposed settlement liability amongst the Pre-Closing Tax
Period and the portion of the Straddle Period commencing on the day after the
Closing Date. To the extent KDC is represented in any discussions with any
taxing authority with respect to taxes for a Straddle Period, such
representatives shall owe an equal duty to both KDC and KREG.
X. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
10.1 NON -DISCLOSURE COVENANT OF KDC AND THE INDIVIDUAL PARTIES. KDC and
the Individual Parties recognize and acknowledge that it and they have in the
past, currently have, and in the future may continue to have, access to certain
Confidential Information of KREG and its Affiliates that is valuable, special
and a unique asset of such entity's business. KDC and the Individual Parties,
on behalf of themselves and their Affiliates, agree that they will not disclose
such Confidential Information to any Person, firm, corporation, association or
other entity for any purpose or reason whatsoever, except (a) to authorized
representatives of KDC and (b) to counsel and other advisors to KNHC or KDC
provided that such advisors (other than counsel) agree to the confidentiality
provisions of this SECTION 10.1, unless (i) such information becomes available
to or known by the public generally through no fault of KDC and the Individual
Parties, (ii) disclosure is required by law or the order of any governmental
authority under color of law, provided, that prior to disclosing any information
pursuant to this clause (ii) KDC shall give prior written notice thereof to KREG
and provide KREG with the opportunity to contest such disclosure, (iii) the
disclosing party reasonably believes that such disclosure is required in
connection with the defense of a lawsuit against the disclosing party, or (iv)
the disclosing party is the sole and exclusive owner of such Confidential
Information as a result of the purchase and sale of the Stock or otherwise. In
the event of a breach or threatened breach by any party to this Agreement of the
provisions of this SECTION 10.1, then each other party to this Agreement shall
be entitled to an injunction restraining the party or parties involved in the
breach or threatened breach from disclosing, in whole or in part, such
Confidential Information, and the party against whom such injunction is sought
consents to such relief. Nothing herein shall be construed as prohibiting the
exercise of any other available remedy for such breach or threatened breach,
including the recovery of damages.
27
10.2 NON-DISCLOSURE COVENANT OF KREG AND KHI. KREG and KHI recognize and
acknowledge that they have in the past, currently have, and in the future may
continue to have, access to certain Confidential Information of KDC, the
Investments, the Project Partnerships and the Individual Parties following the
Closing Date that is valuable, special and a unique asset of such parties
business. KREG and KHI, on behalf of themselves and their Affiliates, agree
that they will not disclose such Confidential Information of KDC and, following
the Closing Date, of the Investments, Project Partnerships, and the Individual
Parties to any Person, firm, corporation, association or other entity for any
purpose or reason whatsoever, except (a) to authorized representatives of KREG
and KHI and (b) to counsel and other advisers to KREG and KHI provided that such
advisers (other than counsel) agree to the confidentiality provisions of this
SECTION 10.2, unless (i) such information becomes available to or known by the
public generally through no fault of KREG and KHI, (ii) disclosure is required
by law or the order of any governmental authority under color of law, provided,
that prior to disclosing any information pursuant to this clause (ii) KREG and
KHI shall give prior written notice thereof to KDC and the Individual Parties
and provide KDC and the Individual Parties with the opportunity to contest such
disclosure, (iii) the disclosing party reasonably believes that such disclosure
is required in connection with the defense of a lawsuit against the disclosing
party, or (iv) the disclosing party is the sole and exclusive owner of such
Confidential Information. In the event of a breach or threatened breach by any
party to this Agreement of the provisions of this SECTION 10.2, then each other
party to this Agreement shall be entitled to an injunction restraining the party
or parties involved in the breach or threatened breach from disclosing, in whole
or in part, such Confidential Information, and the party against whom such
injunction is sought consents to such relief. Nothing herein shall be construed
as prohibiting the exercise of any other available remedy for such breach or
threatened breach, including the recovery of damages.
10.3 SURVIVAL. Notwithstanding any other provision of this Agreement to
the contrary, the obligations of the parties under this ARTICLE X shall survive
the termination of this Agreement.
XI. MISCELLANEOUS
11.1 AMENDMENT; WAIVERS. This Agreement may be amended, modified or
supplemented only by an instrument in writing executed by all the parties
hereto. Any waiver of any terms and conditions hereof must be in writing, and
signed by the parties hereto. The waiver of any of the terms and conditions of
this Agreement shall not be construed as a waiver of any other terms and
conditions hereof.
11.2 ASSIGNMENT; CONTRIBUTION AND SUBSEQUENT TRANSFERS. Neither this
Agreement nor any right created hereby or in any agreement entered into in
connection with the transactions contemplated hereby shall be assignable by any
party hereto without the consent of KREG and KDC, which consent shall not be
unreasonably withheld. Notwithstanding the foregoing provision or any other
provision in this Agreement, KNHC's right to assign, transfer, convey,
hypothecate or otherwise dispose of the Stock immediately after the Closing
28
to KDC in connection with the Contribution shall be unrestricted other than as
required by federal and state securities laws for compliance therewith.
Immediately following the Closing, KNHC shall liquidate KOC in connection with
the Contribution, and will contribute all of its assets and liabilities to KDC
and KNHC shall be released and relieved of any further obligation under this
Agreement; provided, however, that no subsequent transfers of the Stock or any
of the assets of KOC or any of its lower tier Affiliates shall in any way limit
or modify (a) the liabilities that are being transferred to and assumed by KNHC
and/or KDC as expressly set forth in this Agreement or by operation of law
pursuant to the stock sale transaction contemplated herein, the Contribution or
otherwise; or (b) the indemnification provisions in ARTICLE IX which run in
favor of KREG and KHI.
11.3 PARTIES IN INTEREST; NO THIRD PARTY BENEFICIARIES. Except as
otherwise provided herein, the terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the respective heirs, legal
representatives, successors and assigns of the parties hereto. Except as
otherwise expressly provided herein, neither this Agreement nor any other
agreement contemplated hereby or by the transactions shall be deemed to confer
upon any Person not a party hereto or thereto any rights or remedies hereunder
or thereunder.
11.4 SCHEDULES. Any Schedules attached to this Agreement are by this
reference incorporated herein and made a part hereof.
11.5 ENTIRE AGREEMENT. This Agreement and transactions contemplated
hereby and thereby constitute the entire agreement of the parties regarding the
subject matter hereof, and supersede all prior agreements and understandings,
both written and oral, among the parties, or any of them, with respect to the
subject matter hereof.
11.6 SEVERABILITY. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under present or future laws effective during
the term hereof, such provision shall be fully severable and this Agreement
shall be construed and enforced as if such illegal, invalid or unenforceable
provision never comprised a part hereof; and the remaining provisions hereof
shall remain in full force and effect and shall not be affected by the illegal,
invalid or unenforceable provision or by its severance therefrom. Furthermore,
in lieu of such illegal, invalid or unenforceable provision, there shall be
added automatically as part of this Agreement a provision as similar in its
terms to such illegal, invalid or unenforceable provision as may be possible and
be legal, valid and enforceable.
11.7 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. The
representations, warranties and covenants contained herein shall survive the
Closing and all statements contained in any certificate, exhibit or other
instrument delivered by or on behalf of any party pursuant to this Agreement
shall be deemed to have been representations and warranties by such party,
respectively. Notwithstanding any provision in this Agreement to the contrary,
the representations and warranties contained herein shall survive the Closing
until the fifth (5th) anniversary of the Closing Date, except that the
representations
29
contained in SECTION 2.1 shall survive indefinitely and the representations
contained in SECTION 2.8 shall survive for the applicable statutes of
limitations.
11.8 GOVERNING LAW. This Agreement and the rights and obligations of the
parties hereto shall be governed by, construed and enforced in accordance with
the laws of the State of Delaware, without giving effect to the conflicts of
laws rules of the State of Delaware.
11.9 CAPTIONS AND REFERENCES. The captions in this Agreement are for
convenience of reference only and shall not limit or otherwise affect any of the
terms or provisions hereof. References to Schedules, Sections and Articles
refer to those such items as set forth in this Agreement.
11.10 GENDER AND NUMBER. When the context requires, the gender of all
words used herein shall include the masculine, feminine and neuter and the
number of all words shall include the singular and plural.
11.11 CONSTRUCTION. The parties to this Agreement have participated
jointly in the negotiation and drafting of this Agreement. In the event an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the parties hereto and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any of the provisions of this Agreement. Any reference to
federal, state, local or foreign statute or law shall be deemed also to refer to
all rules and regulations promulgated thereunder, unless the context requires
otherwise. The parties to this Agreement intend that each representation,
warranty and covenant contained herein shall have independent significance. If
any party hereto has breached any representation, warranty or covenant contained
in this Agreement in any respect, the fact that there exists another
representation, warranty or covenant relating to the same subject matter
(regardless of the relative levels of specificity) which the party has not
breached shall not detract from or mitigate the fact that the party is in breach
of the first representation, warranty or covenant.
11.12 CONFIDENTIALITY; PUBLICITY AND DISCLOSURES. The parties on behalf
of themselves and their respective Affiliates shall keep this Agreement and its
terms confidential, and shall make no press release or public disclosure, either
written or oral, regarding the transactions contemplated by this Agreement
without the prior knowledge and reasonable consent of the other parties;
PROVIDED, that the foregoing shall not prohibit (a) such public announcements or
filing of public or administrative reports by KREG, KHI, KNHC, the ultimate
corporate parent of KNHC, or KDC as may be required or recommended on advice of
their respective counsel, or (b) any disclosure to attorneys, accountants,
investment bankers or other agents of the parties assisting the parties in
connection with the transactions contemplated by this Agreement. In the event
that the transactions contemplated hereby are not consummated for any reason
whatsoever, the parties hereto agree not to disclose or use any Confidential
Information they may have concerning the affairs of the other parties, except
for information that is required by law to be disclosed. The parties further
agree on behalf of themselves and their respective
30
Affiliates not to disparage or create any negative inference as to
the reputation, prestige, value, image or impression of the other party, or any
of the other parties' officers, directors, personnel or related companies, by
words, actions or other communications, or by any omissions to speak, act or
otherwise communicate, or in any other manner whatsoever. This covenant shall
survive the Closing or the termination of this Agreement.
11.13 NOTICE. Whenever this Agreement requires or permits any notice,
request, or demand from one party to another, the notice, request or demand must
be in writing to be effective and shall be deemed to be delivered and received
(i) if personally delivered or if delivered by telex, telegram or courier
service, when delivered to the party to whom notice is sent, (ii) if delivered
by facsimile transmission, when so sent and receipt acknowledged by receipt or
(iii) if delivered by mail (whether actually received or not), at the close of
business on the third business day next following the day when placed in the
mail, postage prepaid, certified or registered, addressed to the appropriate
party or parties, at the address of such party set forth below (or at such other
address as such party may designate by written notice to all other parties in
accordance herewith):
If to KREG or KHI: Xxxx Real Estate Group, Inc.
0000 Xxx Xxxxxx Xxxxxx
Xxxxxxx Xxxxx, XX 00000
Fax: (714) 261 -6550
ATTN: Xxxxxxx X. Xxxxxx
with a copy to: XxXxxxxxx, Will & Xxxxx
0000 Xxxx Xxxxxx, Xxxxx 000
Xxxxxxx Xxxxx, Xxxxxxxxxx 00000
Fax No.: (714) 851 -9348
ATTN: Xxxxxxx X. Xxxxxxx, Esq.
If to KNHC, KDC or
the Individual Parties: Xxxx Development Company, LLC
0000 Xxx Xxxxxx Xxxxxx
Xxxxxxx Xxxxx, XX 00000
Fax: (714) 250 -4344
ATTN: Xxxxxx X. Xxxx and
Xxxxxxx X. Xxxxxxx, and
31
with copies to : Allen, Matkins, Xxxx, Xxxxxx & Xxxxxxx, LLP
00000 Xxx Xxxxxx, Xxxxxx Xxxxx
Xxxxxx, XX 00000 -1597
Fax No.: (714) 553 -8354
ATTN: S. Xxx Xxxxxxx, Esq., and
Skadden, Arps, Slate, Xxxxxxx & Xxxx LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Fax No. (000) 000-0000
ATTN: Xxxxxxxx X. Xxxxxxx, Esq.
11.14 NO WAIVER. No party hereto shall by any act (except by written
instrument pursuant to SECTION 11.1 ), delay, indulgence, omission or otherwise
be deemed to have waived any right or remedy hereunder or to have acquiesced in
any default in or breach of any of the terms and conditions hereof. No failure
to exercise, nor any delay in exercising, on the part of any party hereto, any
right, power or privilege hereunder shall operate as a waiver thereof. No
single or partial exercise of any right, power or privilege hereunder shall
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. No remedy set forth in this Agreement or otherwise
conferred upon or reserved to any party shall be considered exclusive of any
other remedy available to any party, but the same shall be distinct, separate
and cumulative and may be exercised from time to time as often as occasion may
arise or as may be deemed expedient.
11.15 TERMINATION PRIOR TO CLOSING. This Agreement and the transactions
contemplated hereby may be terminated (a) at any time prior to the Closing by
mutual agreement of all parties; or (b) by any party hereto if the Closing of
this Agreement and the consummation of the transactions contemplated hereby
shall not have occurred on or before April 30, 1998, unless such date is
extended pursuant to SECTION 4.1, by KNHC pursuant to SECTION 7.4 or is
otherwise mutually extended by all parties; (c) by KREG or KHI in the event of
any material breach of the representations, warranties or covenants of KNHC or
KDC or their respective failure to provide the deliveries set forth in ARTICLE
VIII; (d) by KREG or KHI pursuant to the provisions of SECTION 4.1; or (e) by
KNHC or KDC in the event of any material breach of the respective
representations, warranties or covenants of KREG or KHI or their respective
failure to provide the deliveries set forth in ARTICLE VIII. In the event of
any termination of this Agreement other than by reason of a material breach by
KNHC or KDC, KNHC shall be entitled to the return of the Initial Consideration
(and interest thereon in the amount specified in SECTION 4.1(a)) within five (5)
days after the date of such termination. In the event of a termination of this
Agreement pursuant to SECTION 4.1, KREG shall pay to KDC on the date of
termination the amounts contemplated by SECTION 4.1. All such amounts shall be
paid in immediately available funds without any further payment or obligation
with respect to any premium, penalty, other consideration or damages, or
reimbursement of any costs or expenses
32
11.16 TIME OF ESSENCE. Time is of the essence with respect to this
Agreement.
11.17 REMEDIES NOT EXCLUSIVE. No remedy conferred by any of the specific
provisions of this Agreement is intended to be exclusive of any other remedy,
and each and every remedy shall be cumulative and shall be in addition to every
other remedy given hereunder or now or hereafter existing at law or in equity or
by statute or otherwise. The election of anyone or more remedies by any party
hereto shall not constitute a waiver of the right to pursue other available
remedies.
11.18 COSTS, EXPENSES AND LEGAL FEES. Whether or not the transactions
contemplated hereby are consummated, each party hereto shall bear its own costs
and expenses (including attorneys' fees and expenses), except that (a) KNHC and
KDC shall be entitled to certain attorneys' fees and expenses to the extent
applicable pursuant to the provisions of SECTION 4.1; and (b) each party hereto
agrees to pay the costs and expenses (including reasonable attorneys' fees and
expenses) incurred by the other parties in successfully (i) enforcing any of the
terms of this Agreement, or (ii) proving that another party breached any of the
terms of this Agreement. The parties acknowledge that each party shall be
responsible for its own attorneys' fees, accountants' and other advisory fees
associated with the Closing, it being understood and agreed that none of KREG's
or KHI's expenses relating to the transactions contemplated by this Agreement
shall be paid or payable by KOC.
11.19 EXECUTION. Other than original stock certificates, this Agreement
and any other documents related hereto, including exhibits and/or certificates,
may be executed by facsimile signature page if promptly followed by delivery of
an executed original.
11.20 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
11.21 SECTION 338(h)(10) ELECTION.
(a) With respect to the acquisition of the Stock hereunder, if KNHC so
elects with respect to KOC and any corporate Affiliate of KOC that KNHC so
designates, (i) KNHC shall make a timely election under section 338(g) of the
Code (and any comparable election under state or local tax law), (ii) KREG and
KNHC shall jointly make the election provided for by SECTION 338(h)(10) of the
Code (the "Election") and KREG and KNHC shall, as promptly as practicable
following the Closing Date, cooperate with each other to take all actions
necessary and appropriate (including filing such forms, returns, elections,
schedules and other documents as may be required) to effect and preserve a
timely Election in accordance with the provisions of Treasury Regulation SECTION
1.338(h)(10)-1(d) (or any comparable provisions of state or local tax law) or
any successor provisions and (iv) KREG and KNHC shall report the sale of Stock
pursuant to this Agreement consistent with the Election (and any comparable
elections under state or local tax laws) and shall take no
33
position to the contrary thereto in any Tax Return, any proceeding before any
taxing authority, or otherwise.
(b) In connection with the Election, KREG and KNHC shall act together in
good faith to agree on the Aggregate Deemed Sales Price and Adjusted Grossed-up
Basis (as defined under applicable Treasury Regulations) and the allocation of
such Adjusted Grossed-up Basis among the assets of KOC and any corporate
Affiliate of KOC for which an Election has been made. Such allocation of the
Adjusted Grossed-up Basis shall be made in accordance with section 338(b) of the
Code and any applicable Treasury Regulations. KREG and KNHC (i) shall be bound
by such allocation for purposes of determining any Taxes; (ii) shall prepare and
file all Tax Returns to be filed with any taxing authority in a manner
consistent with such allocation; and (iii) shall take no position inconsistent
with such allocation in any Tax Return, any proceeding before any taxing
authority or otherwise. In the event that such allocation is disputed by any
taxing authority, the party receiving notice of such dispute shall promptly
notify and consult with the other party hereto concerning resolution of such
dispute.
11.22 SURVIVAL OF TAX PROVISIONS. Any claim to be made pursuant to
Sections 9.4 or 11.21 hereof must be made before the expiration (with valid
extensions) of the applicable statutes of limitations relating to the Taxes at
issue.
11.23 REAL AND PERSONAL PROPERTY TAXES. KREG shall pay or cause to be
paid any and all liabilities of KOC for real and personal property taxes and
assessments relating to all periods ending on or prior to December 31, 1997.
KDC shall pay or cause to be paid any and all liabilities of KOC for real and
personal property taxes and assessments relating to taxable periods commencing
on or after January 1, 1998, provided that with respect to periods prior to the
Closing Date, personal property taxes and adjustments (but not real property
taxes and adjustments which are capitalized) shall be taken into account in
determining the 1998 Activity Consideration as set forth in SCHEDULE 1.2.
11.24 TRANSFER TAXES. Notwithstanding any other provisions of this
Agreement to the contrary, KDC and KREG shall pay, or cause to be paid, equal
shares of all sales, use, transfer, stamp, duties, recording and similar taxes,
if any, required to be paid in connection with KDC's purchase of the Stock
pursuant to this Agreement.
11.25 RETURN FILINGS, REFUNDS AND CREDITS.
(a) KREG shall prepare or cause to be prepared and file or cause to be
filed on a timely basis (in each case, at its own cost and expense and in a
manner consistent with past practice) all Tax Returns with respect to KOC for
taxable periods ending on or prior to the Closing Date. KREG shall provide KOC
with copies of such Tax Returns (which, with respect to Tax Returns that relate
to an affiliated or combined group that includes KOC, shall be "pro-forma"
returns) covering any taxable period beginning on January 1, 1998 and ending on
or prior to the Closing Date, on or prior to the due date thereof (including any
extensions thereto). KREG shall pay all Taxes shown on all such Tax Returns.
34
(b) KDC shall prepare or cause to be prepared and shall file or cause to
be filed on a timely basis all other Tax Returns with respect to KOC. In
connection therewith, KDC shall be responsible for and shall pay any Taxes for
which KDC has agreed to indemnify KREG pursuant to SECTION 9.4 hereof. In filing
its return for purposes of Texas franchise tax, KDC shall treat any income from
the deemed sale of assets attributable to the sale of partnership interests
owned by KOC as a sale of intangible assets and net gain attributable to such
deemed sale shall be included only in the denominator of the gross receipts
apportionment formula because it is apportioned (attributed) to the location,
i.e. the legal domicile, of the payor in accordance with Texas Regulation, 34
TAC Sec. 3.549. KDC shall provide KREG with copies of any such Tax Returns
covering Taxes for which KREG has agreed to indemnify KNHC, KDC and their
Affiliates (including KOC) pursuant to SECTION 9.4 hereof at least ten (10) days
prior to the due date thereof (giving effect to the extensions thereto),
accompanied by a statement calculating KREG's indemnification obligation
pursuant to SECTION 9.4 hereof. KREG shall pay to KDC the amount of KREG's
indemnification obligation within ten (10) days of receiving copies of such Tax
Returns unless the parties are unable to agree on the amount of KREG's
indemnification obligation hereunder in which case such dispute shall be
resolved by independent accountants acceptable to both parties whose fees and
expenses shall be paid by KREG and KDC in proportion to each party's respective
liability for Taxes as determined by such accountants, and KREG shall pay the
amount determined by such accountants within ten (10) days of such
determination.
(c) KREG, KOC, KNHC and KDC shall reasonably cooperate, and shall cause
their respective affiliates, officers, employees, agents, auditors and
representatives reasonably to cooperate, in preparing and filing all Tax Returns
(including amended returns and claims for refund), including maintaining and
making available to each other all records necessary in connection with Taxes
and in resolving all disputes and audits with respect to all taxable periods
relating to Taxes. KDC and KREG recognize that KREG and its affiliates will
need access, from time to time, after the Closing Date, to certain accounting
and tax records and information held by KOC to the extent such records and
information pertain to events prior to the Closing Date; therefore, KDC agrees
that (i) from and after the Closing Date until the eighteenth anniversary of the
Closing Date, KDC shall, and shall cause KOC to, (A) use all reasonable efforts
to properly retain and maintain such records until such time as KREG agrees that
such retention and maintenance is no longer necessary, and (B) allow KREG and
its agents and representatives (and agents or representatives of any of its
affiliates), to inspect, review and make copies of such records as KREG may deem
necessary or appropriate from time to time, such activities to be conducted
during normal business hours and at KREG's sole expense and (ii) from and after
the eighteenth anniversary of the Closing Date, KDC shall not, and shall cause
KOC not to, dispose of any of such records without first providing KREG with an
opportunity to take possession of such records or to make copies thereof, at
KREG's sole expense, prior to any such disposal.
(d) Any refunds or credits of Taxes of KOC for any taxable period ending
on or before the Closing Date shall be for the account of KREG. Any refunds or
credits of Taxes of KOC for any taxable period beginning after the Closing Date
shall be for the account of
35
KDC and shall be paid by KREG to KDC within 10 days after KREG receives such
refund. Any refunds or credits of Taxes of KOC for any Straddle Period shall be
apportioned between KREG and KDC on the basis of the "interim closing of the
books". If KDC in good faith determines that it will not have any adverse effect
on its Tax liability, KDC shall, if KREG so requests and at KREG's sole expense,
cause KOC to file for and obtain any refunds or credits which KREG is entitled
under this SECTION 11.23. If KDC makes such good faith determination, KDC shall
cause KOC to forward to KREG any such refund within 10 days after the refund is
received (or reimburse KREG for any such credit within 10 days after the
relevant Tax Return is filed in which the credit is actually applied against
KOC's liability for Taxes).
11.26 CONSISTENT TAX POSITIONS. KNHC and KDC (and by written
acknowledgement hereto KOC) covenant and agree that neither KOC nor any of
its subsidiaries shall take a position, for federal income tax purposes and
comparable state and local tax purposes (including in connection with any
examination or audit by any tax authority or other proceeding), inconsistent
with the position that (a) the federal consolidated group of which KREG is
the common parent (the "KREG Group") underwent an ownership change within the
meaning of SECTION 382 of the Code as a result of the bankruptcy
reorganization of KREG in 1997, (b) the provisions of SECTION 382(1)(5) apply
to such ownership change, and (c) that each member of the KREG Group is
subject to the provisions of SECTION 382(1)(5) of the Code in the respect of
such ownership change; PROVIDED, HOWEVER, that if KREG elects not to apply
the provisions of SECTION 382(1)(5) of the Code, this provision shall not
apply. Accordingly, subject to the provision in the preceding sentence, KOC
and its subsidiaries shall treat the purchase of the stock of KOC pursuant to
this Agreement as a second ownership change within the meaning of SECTION
382(1)(5)(D) of the Code and under any comparable provisions of state and
local law. In furtherance of the foregoing, KOC further agrees to execute
and deliver, and to cause its subsidiaries to execute and deliver, to KREG
such other documents or agreements evidencing the foregoing and compliance
therewith, if and when reasonably requested by KREG.
11.27 TERMINATION OF TAX SHARING AGREEMENTS. KREG hereby agrees and
covenants that any obligation of KOC pursuant to any tax sharing agreement or
similar arrangements shall be terminated on or before the Closing Date, and
no payments pursuant to any such tax sharing agreement or arrangements shall
be made after such termination.
36
XII. DEFINITIONS
As used in this Agreement, the following terms shall have the meanings set
forth below:
"Affiliate" with respect to any Person shall mean a Person that, directly or
indirectly through one or more intermediaries, controls, is controlled by, or is
under common control with, such Person.
"Agreement" shall have the meaning set forth in the preamble to this Agreement.
"Claim Notice" shall have the meaning set forth in SECTION 9.3(a) .
"Closing" shall mean the closing of the transactions contemplated by this
Agreement as set forth in SECTION 1.4.
"Closing Consideration" shall have the meaning set forth in SECTION 1.2.
"Closing Date" shall have the meaning set forth in SECTION 1.4.
"Code" shall have the meaning set forth in SECTION 2.7(b).
"Confidential Information" shall mean all trade secrets and other confidential
and/or proprietary information of the particular Person, including, but not
limited to, information derived from reports, processes, data, know -how,
software programs, improvements, inventions, strategies, compensation
structures, reports, investigations, research, work in progress, codes,
marketing and sales programs and plans, financial projections, cost summaries,
formulae, contract analyses, financial information, forecasts, confidential
filings with any state or federal agency, and all other confidential concepts,
methods of doing business, ideas, materials or information prepared or performed
for, by or on behalf of such Person by its employees, officers, directors,
agents, representatives, or consultants.
"Contribution" shall have the meaning set forth in the preamble to this
Agreement.
"Damages" shall have the meaning set forth in SECTION 9.1.
"Election" shall have the meaning set forth in SECTION 9.4.
"Election Period" shall have the meaning set forth in SECTION 9.3(a).
"Encumbrance" shall mean any charge, claim, community property interest,
equitable interest, lien, option, pledge, security interest, right of first
refusal, or restriction of any kind, including any restriction on use, voting,
transfer, receipt of income or exercise of any other attribute of ownership.
37
"Environmental Laws" shall mean any federal, state or local laws, ordinances,
codes, regulations, rules, policies and orders that are intended to assure the
protection of the environment, or that classify, regulate, call for the
remediation of, require reporting with respect to, or list or define air, water,
groundwater, solid waste, Hazardous Substances, or which are intended to assure
the safety of employees, workers or other persons, including the public in each
case as in effect on the date hereof.
"Environmental Liabilities" shall mean all liabilities, whether contingent or
fixed, which have arisen, or may arise, under Environmental Laws.
"ERISA Affiliates" shall have the meaning set forth in SECTION 2.7(a).
"ERISA Liabilities" shall mean all liabilities whether contingent or fixed which
have arisen or may arise under the Employee Retirement Income Security Act of
1974, as amended, and all rules and regulations from time to time promulgated
thereunder.
"ERISA Plans" shall have the meaning set forth in SECTION 2.7(a).
"GAAP" shall mean U. S. generally accepted accounting principles.
"Guarantees" shall have the meaning set forth in SECTION 5.5.
"Hazardous Substances" shall mean any toxic or hazardous substances, material or
waste, or any pollutant or contaminant, or infectious or radioactive substance
or material, including without limitation, those substances, materials and
wastes defined in or regulated under any Environmental Laws.
"Indemnified Party" shall have the meaning set forth in SECTION 9.3(a).
"Indemnifying Party" shall have the meaning set forth in SECTION 9.3(a).
"Indemnity Notice" shall have the meaning set forth in SECTION 9.3(d).
"Initial Consideration" shall have the meaning set forth in SECTION 1.2.
"Investments" shall have the meaning set forth in SECTION 2.2.
"IRS" shall mean the Internal Revenue Service.
"Knowledge of the Individual Parties" means the actual knowledge of Xxxxxx
X.Xxxx without any duty of inquiry and the knowledge of Xxxxxxx X. Xxxxxxx after
reasonable inquiry of those persons employed by KOC or its Affiliates who are
likely to have knowledge of the subject matter of any particular inquiry.
38
"Knowledge of KNHC or KDC" means the actual knowledge of the executive officers
and those persons charged with executive management and policy making decisions
after reasonable inquiry.
"Knowledge of KREG" means with respect to KREG, KHI and KOC, the actual
knowledge of Xxxxxxx X. Xxxxxx and Xxxxxx Xxxxxxx after reasonable inquiry
(other than inquiry of the Individual Parties or other employees who will remain
in the employ of KOC or its lower tier Affiliates after the Closing); and with
respect to the KOC Employee Affiliates, Project Partnerships and their
respective lower tier Affiliates of KOC, the actual knowledge of Xxxxxxx X.
Xxxxxx and Xxxxxx Xxxxxxx without any duty of inquiry.
"KNHC Individual" shall have the meaning set forth in SECTION 8.2(g).
"KOC Employee Affiliates" means KREG-OC, L.P., a California limited partnerships
KREG-SW, L.P., a California limited partnership, KREG-SW, EPA L.P., a Texas
limited partnership, and KREG-AZ, L.P., an Arizona limited partnership.
"KREG Consolidated Group" shall have the meaning set forth in SECTION 2.8.
"Letter of Credit" shall mean a letter of credit from a financial institution
reasonably acceptable to KREG which shall provide as follows:
(a) the Letter of Credit shall be irrevocable and shall initially
be in a face amount equal to the indicated percentage of the principal
amount of the Guarantees for which Releases shall not have been obtained
on or prior to the Closing Date (the "Unreleased Amount"): (i) 5%, if
the Unreleased Amount is less than $100 million; (ii) 4%, if the
Unreleased Amount is between $100 million and $200 million: and (iii) 3%,
if the Unreleased Amount is greater $200 million;
(b) the Letter of Credit shall provide that KREG may draw upon the
Letter of Credit upon KREG's submission of a written certification to
the issuer of the Letter of Credit that: (i) it has received notice from
a lender demanding or requiring KREG to perform under a Guarantee and (ii)
it has given KDC at least fifteen (15) days' prior written notice of such
demand and KDC has not caused the applicable lender to withdraw the
demand letter; and
(c) the Letter of Credit shall provide that its face amount shall be
reduced as of the first business day of each month to the amount that would
have been determined pursuant to clause (a) above if the Unreleased Amount
in effect as of the close of business on the last business day of the
previous month had been the Unreleased Amount on the Closing Date (it being
recognized that the outstanding principal amount of the guarantees shall be
reduced over time as liability thereunder is satisfied or reduced in
accordance with the terms of such guarantees) and shall expire at any
time that the Unreleased Amount shall be reduced to less than $2
million.
39
"Material Adverse Effect" shall mean a material adverse effect on the assets,
properties, business, operations, condition (financial or otherwise),
liabilities, results of operations or prospects of the Person or Persons being
referred to, taken as a whole (including its consolidated subsidiaries, if any),
in consideration of all relevant facts and circumstances.
"Netting Agreements" shall mean the Netting Agreements between each of the KOC
Employee Affiliates and the employee partners of such KOC Employee Affiliates.
"1998 Activity Consideration" shall have the meaning set forth in SECTION 1.2.
"PBGC" shall have the meaning set forth in SECTION 2.7(c).
"Person" shall mean any natural person, corporation, partnership, joint venture,
limited liability company, association, group, organization or other entity.
"Plans" shall have the meaning set forth in SECTION 2.7(a).
"Pre-Closing Tax Period" shall have the meaning set forth in SECTION 9.4.
"Project Partnerships" means partnerships formed by the KOC Employee Affiliates
and third parties to hold interests in real estate.
"Purchase Price" shall have the meaning set forth in SECTION 1.2.
"Releases" shall have the meaning set forth in SECTION 5.5.
"Required Consents" shall have the meaning set forth in SECTION 2.5.
"Stock" shall have the meaning set forth in the preamble to this Agreement.
"Straddle Period" shall have the meaning set forth in SECTION 9.4(c).
"Tax Claim" shall have the meaning set forth in SECTION 9.5(a).
"Tax Notice" shall have the meaning set forth in SECTION 9.5(a).
"Taxes" shall mean all (a) federal, state, local or foreign income, property,
sales, use, occupation, service, transfer, payroll, franchise, excise,
withholding and any other taxes (other than real property taxes) or similar
governmental charges, fees, levies or other assessments, including any interest,
penalties or additions with respect thereto, (b) liabilities for the payment of
any amounts of the type described in (a) as a result of being a member of an
affiliated, consolidated, combined, unitary or similar group, and (c)
liabilities for the payment of any amounts as a result of being party to any tax
sharing agreement or similar arrangement or as a result of any express or
implied obligation to indemnify any other person with respect to the payment of
any amounts of the type described in clause (a) or (b).
40
"Tax Return"shall mean any return, report, information return, or other document
(including any related or supporting information) filed or required to be filed
with any federal, state, local or foreign governmental entity or other authority
in connection with the determination, assessment or collection of any Tax
(whether nor not such Tax is imposed on KOC or the Investments) or the
administration of any laws, regulations or administrative requirements relating
to any Tax.
"Third Party Claim" shall have the meaning set forth in SECTION 9.3(a).
"Unreleased Amount" shall have the meaning set forth in the definition of Letter
of Credit.
"Vesting Agreements" shall mean the Vesting Agreements between each of the KOC
Employee Affiliates and the employee partners of such KOC Employee Affiliates.
41
IN WITNESS WHEREOF, the parties hereto have duly executed this Stock
Purchase Agreement as of the date first written above.
KREG:
XXXX REAL ESTATE GROUP, INC.
By /s/ Xxxxxxx X. Xxxxxx
-----------------------------------
Xxxxxxx X. Xxxxxx
Executive Vice President
and Chief Financial Officer
KHI:
KREG HOLDINGS, INC.
By /s/ Xxxxxxx X. Xxxxxx
-----------------------------------
Xxxxxxx X. Xxxxxx
Executive Vice President
and Chief Financial Officer
KNHC:
KN HOLDING CORP.
By
-----------------------------------
Name:
Title:
KDC:
XXXX DEVELOPMENT COMPANY LLC
By KN Holding Corp.
By
----------------------------------
Name:
Title:
By KDP Holdings, LLC
By
---------------------------------
Name:
Title:
INDIVIDUAL PARTIES:
/s/ Xxxxxx X. Xxxx
-----------------------------------
Xxxxxx X. Xxxx
/s/ Xxxxxxx X. Xxxxxxx
-----------------------------------
Xxxxxxx X. Xxxxxxx
42
EXHIBIT A
KREG OPERATING CO.
BALANCE SHEET
AS OF DECEMBER 31, 1997
(in thousands)
ASSETS:
Cash $ 1,097
Restricted cash 242
Accounts receivable 2,587
Real estate held for development 82,096
Reorganization value in excess of amounts allocated in net assets 13,250
Investment in unconsolidated development projects 1,874
Predevelopment 2,329
Other assets 605
-------------
$ 104,080
-------------
-------------
LIABILITIES AND EQUITY:
Accounts payable and accrued liabilities $ 6,262
Project debt 74,658
Minority interest 2,869
-------------
Total Third Party Liabilities 83,789
-------------
Due to parent 9,575
STOCKHOLDER'S EQUITY:
Common stock 10
Additional paid-in-capital 23,338
Accumulated deficit (12,632)
-------------
Total Equity 10,716
-------------
$ 104,080
-------------
-------------
UNAUDITED
A - 1
EXHIBIT A
KREG OPERATING CO.
BALANCE SHEET
AS OF FEBRUARY 28, 1997
(in thousands)
ASSETS:
Cash $ 563
Restricted cash 242
Accounts receivable 2,377
Real estate held for development 105,605
Reorganization value in excess of amounts allocated in net assets 13,100
Investment in unconsolidated development projects 2,532
Predevelopment 2,157
Other assets 489
-------------
$ 127,065
-------------
-------------
LIABILITIES AND EQUITY:
Accounts payable and accrued liabilities $ 2,680
Project debt 100,801
Minority interest 2,869
-------------
Total Third Party Liabilities 106,350
-------------
Due to parent 10,457
STOCKHOLDER'S EQUITY:
Common stock 10
Additional paid-in-capital 23,338
Accumulated deficit (13,090)
-------------
Total Equity 10,258
-------------
$ 127,065
-------------
-------------
UNAUDITED
A - 2
EXHIBIT A
KREG OPERATING CO.
NOTES TO BALANCE SHEET
Note 1 Basis of Presentation
The financial statements of KREG Operating Co. (the "Company"), an
indirect wholly-owned subsidiary of Xxxx Real Estate Group, Inc.
(the "Parent"), are internally prepared and unaudited. Certain
information and substantially all footnote disclosures normally
included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or
omitted. The Company began business on September 30, 1993, upon its
acquisition of the domestic development operations of The Xxxx
Company.
Note 2 Reorganization value in excess of amounts allocated to net assets
Reorganization value in excess of amounts allocated to net assets
arose from the adoption of Fresh-Start Reporting upon the Parent's
completion of its recapitalization on September 2, 1997 and is
being amortized on a straight-line basis over 15 years.
Note 3 Income taxes
The Company is included in the consolidated tax returns of the
Parent and no current or deferred tax provisions are reflected in
the accompanying balance sheet from inception.
A - 3
Exhibit B
Page 1 of 3
NEWS RELEASE - DRAFT DATED 3/30/98
Contact: Xxxxxxx X. Xxxxxx, Chief Financial Officer, 000-000-0000 X000
KREG ANNOUNCES AGREEMENT TO SELL COMMERCIAL DEVELOPMENT BUSINESS
- COMPANY PLANS TO FOCUS ON RESIDENTIAL BUSINESS
NEWPORT BEACH, California -- March 31, 1998 - Xxxx Real Estate Group,
Inc. (NASDAQ:KREG) announced today that it has executed a definitive
agreement with Xxxx Development Company LLC ("KDC") and an affiliated
company, for the sale of the Company's commercial development business for
(1) $30 million in cash plus adjustments for 1998 activity; and (2) the
assumption by KDC of all liabilities related to the business.
KDC is a newly formed limited liability company, whose members include
the Company's current Chairman and Chief Executive Officer, Xxxxxx X. Xxxx
and its President, Xxxxxxx X. Xxxxxxx. Upon completion of the transaction,
Messrs. Xxxx and Xxxxxxx will resign from their current positions with the
Company, and the Company will change its name to discontinue use of the
"Xxxx" name.
The Company also announced that, effective upon completion of the
transaction, Xxxxxxx X. Xxxxxx will be appointed as the Company's new
President and Chief Executive Officer. Xx. Xxxxxx has been the Chief
Financial Officer of the Company since 1992 and has 18 years of experience
with publicly traded companies, including 10 years in real estate
development. Prior to moving to the Company's headquarters in Newport Beach,
CA in 1990, Xx. Xxxxxx held various financial management positions with the
Company's predecessor, The Xxxxxx Group, Inc. from 1986 to 1989 in Hampton,
NH. From 1979 to 1986, he was a C.P.A. with the "Big Six" accounting firm of
Coopers & Xxxxxxx in Boston, MA.
In approving the transaction, the Company's Board of Directors accepted
a recommendation from a Special Committee of independent directors that had
negotiated with KDC that the terms of the proposed sale of the commercial
development business to KDC are fair to, and in the best interests of, the
Company and its shareholders.
March 31, 1998 Page 2 of 3
Xx. Xxxx stated, "This transaction is beneficial to all parties
concerned. The Company and its shareholders will receive necessary capital to
continue development of its existing land inventory, while the commercial
group will be better positioned to focus on its core competency, which is the
development of office, industrial and retail real estate across the United
States and Asia."
Xx. Xxxxxx commented, "We believe the residential real estate
market in California is one of the best in this state's history. By selling
the commercial development business, the Company will be in a position to
focus exclusively on maximizing the value of its significant residential land
holdings. Our residential team, which includes Xxxx Xxxx, Senior Vice
President; Xx Xxxxxxxxx, Vice President; and Xxxx Xxxxxxxx, the President
of our homebuilding subsidiary, will remain with the Company to lead the
litigation process and the ultimate development of the Bolsa Chica property.
This infusion of cash allows the Company to vigorously defend its land use
entitlements at Bolsa Chica through the pending court appeals and commence
construction immediately thereafter." The Company also is developing
master-planned communities elsewhere in Southern California, in Aliso Viejo
(1,200 homes), Escondido (580 homes) and Fairbanks Highlands (a 93-home joint
venture).
KREG received a deposit of $1 million from KDC upon execution of the
definitive agreement, which is nonrefundable except under limited
circumstances, including if a higher offer for the commercial development
business ultimately is accepted by the Company, in which case KDC also would
be paid a break-up fee of $2 million plus up to $500,000 for legal and other
advisory fees. In the event that a higher offer is accepted, Messrs. Xxxx
and Xxxxxxx would not be obligated to perform any services for the acquiror
and would have the right to immediately be released from their employment
agreements with the Company, including their covenants-not-to-compete.
As noted above, the definitive agreement was unanimously approved
by a Special Committee of independant directors, which commissioned an
investment banking firm, The Blackstone Group L.P., to provide advice on
strategic alternatives and the fairness of the proposed terms of the
transaction. The Special Committee has directed
March 31, 1998 Page 3 of 3
the Company's management and The Blackstone Group L.P. to be available to
receive inquiries from any other parties interested in the possible
acquisition of the commercial development business and, if appropriate, to
provide information and enter into discussions and negotiations with such
parties in connection with any such indicated interest.
The transaction is scheduled to be completed on April 30, 1998,
subject to various conditions, unless extended by agreement of the parties.
The Company expects to realize a gain on this transaction of approximately
$9.5 million; however, there can be no assurance that the transaction with
KDC will be completed or will close on schedule.
The Company is a residential land development and homebuilding company
which holds a large residential land inventory in Southern California. The
Company's principal subsidiaries and operating divisions are Signal Landmark,
which owns the approximately 200-acre Warner Mesa (formerly known as the
Bolsa Chica mesa) property, and Hearthside Homes, the fifth largest
homebuilder in Orange County, currently building the 1,200 home project in
Aliso Viejo, CA.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995.
Certain statements in this press release constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform
Act of 1995. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results,
performance or achievements of the Company to be materially different from
any future results, performance or achievements expressed or implied by such
forward-looking statements.
***END***
SCHEDULE 1.2
1998 Activity Consideration
Notes
-----
1) CARRY ON $30 MILLION @ 13.5% FROM 1/1/98 TO 3/31/98 (A) 1,012,500 (i)
------------
------------
2) PLUS NET CASH USED BY OPERATIONS
FROM 1/1/98 THROUGH CLOSING (4/30/98):
a. Net Cash Used By Operations Before New Project Equity
Investments and Asset Sales Activity:
i. Net Cash Used By Operations Before Asset Sales Activity (B) (1,799,667)
ii. Estimated net pre-development from 1/1 - 4/30 (767,000)
iii. Denso TI's, Lincoln and Other Project costs, net (203,000)
------------
subtotal (C) (2,769,667)
------------
b. Net Asset Sales Activity (C) & (D) 3,366,000
------------
c. NEW PROJECT EQUITY EXPECTED TO BE INVESTED FROM 1/1 TO 4/30
Disney (287,000)
Main & MacArthur / NorthStar LLC (466,519)
Tech Plaza (168,000)
Valley View (29,167)
Omni (230,000)
Arrowhead (200,000)
------------
Subtotal (E) (1,380,686)
------------
d. Estimated Interest on Net Cash Used By Operations and
Preferred Return on Project Equity Investments (C) & (E) (51,000)
------------
Estimated Net Cash Used By Operations from 1/1/98 to closing (F) (835,353) (ii)
------------
------------
Estimated total due to Parent @ closing = (i)-(ii) 1,847,853
------------
------------
NOTES:
(A) - (F) See Attached
1.2-1
SCHEDULE 1.2
1998 Activity Consideration
NOTES TO SCHEDULE 1.2
(A) Interest carry on the $30 million Purchase Price from January 1, 1998
through March 31, 1998 shall be calculated using a simple interest rate of
13.5% per annum based on a 360 day year (i.e. $30 million * 13.5% / 360 * 90
days = $1,012,500). In the event that KNSH elects to defer the Closing Date
in accordance with Section 7.4, then interest carry on the $30 million
Purchase Price shall be increased for the period from May 1, 1998 through the
Closing Date using a simple interest rate of 12% per annum based on a 360 day
year.
(B) Net Cash Used By Operations Before Asset Sales shall be calculated based
on KOC's standard monthly financial reports (see 1.2 - 4) in a manner
consistent with Schedule 1.2 and the notes thereto, and includes an agreed
upon allocation of Corporate overhead of $50,000 per quarter, or $16,667 per
month (see 1.2 -3).
(C) For Net Cash Used By Operations Before new Project Equity Investments and
Asset Sales Activity, interest on the average monthly balance (which shall be
calculated beginning 1/1/98 by adding net cumulative cash flow as of the
beginning of the month plus net cumulative cash flow as of the end of the
month and dividing by 2) shall be calculated using a rate of 13.5% per annum,
or 1.125% per month for each month between 1/1/98 and 3/31/98, and at a rate
of 12% per annum, or 1.00% per month or portion thereof from 4/1/98 through
closing. Such calculation shall include the agreed upon allocation of
Corporate overhead of $16,667 per month. For Net Asset Sales Activity,
interest shall be credited @ a rate of .0375% per day (1.125% per month)
prior to 3/31/98 and @ a rate of .0333% per day (1.00% per month) from 4/1/98
through closing, and shall be calculated on the daily balance from the date
funds are received by KREG.
(D) See 1.2 - 3
(E) For new Project Equity Investments after January 1, 1998, the preferred
return shall be calculated on the daily balance from the date such Project
Equity Investment is made through and including the Closing Date at a rate of
25% per annum, or .0694444% per day based on a 360 day year from 1/1/98
through 3/31/98 and @ a rate of .0333% per day (1.00% per month) from 4/1/98
through closing. Project Equity Investments shall include partial fundings
in advance of project loan fundings where KREG is the intended equity source
from the beginning (i.e. Disney project where KREG funded land purchase prior
to loan closing).
(F) To be adjusted to reflect best estimate one day prior to Closing Date
and further adjusted to reflect actual within 30 days of Closing Date.
1.2-2
SCHEDULE 1.2
1998 Activity Consideration
NOTES TO SCHEDULE 1.2, (CONTINUED)
(B) ESTIMATED CASH BASIS OPERATING INCOME FROM 1/1 - 4/30
Revenues 3,482,000
98 Expenses - Corporate * (66,667)
98 Expenses - Divisions * * (4,652,000)
97 Bonuses (563,000)
------------
Net operations before asset sales (1,799,667)
------------
------------
(D) NET ASSET SALES ACTIVITY:
Net proceeds before employee distributions * * * 4,256,000
Employee distributions before netting (2,128,000)
Deferred development fees paid @ sale 574,000
Denso Preferred Return 64,000
Netting recovery 375,000
------------
Subtotal - Asset Sales 3,141,000
------------
RETURN OF CAPITAL FROM ASSET SALES BUDGETED FOR 1Q98
Metro - Return of capital 200,000
Metro - Preferred Return 25,000
------------
Subtotal 225,000
------------
Net Asset Sales Activity 3,366,000
------------
------------
NOTES:
* Reflects negotiated allocation of corporate overhead of $16,667
per month ($50,000 per quarter)
* * Includes an allocation of 10% of X. Xxxxxxx and X. Xxxxxxxx for
accounting and tax sevices plus 100% of KREG Operating Co.'s
accounting staff
* * * Reflects actual sale of Denso and budgeted sales of Metro,
Anaheim Tech & Spectrum Land
1.2-3
XXXX REAL ESTATE GROUP
SUMMARY STATEMENT OF OPERATIONS
AND CASH FLOW
FOR THE ONE MONTH ENDED DECEMBER 31, 1997
-------------------------------------------------------------------------------------------
SIGNAL LANDMARK
-------------------------------------
RANCHO BOLSA OTHER XXXX XXXX KREG, INC.
SAN XXXXXXX XXXXX PROPERTIES CORPORATE OPERATING COMMUNITES CONSOLIDATED
-------------------------------------------------------------------------------------------
OPERATING STATEMENT
REVENUE 950 2,010 2,960
EXPENSES: COST OF SALES 950 1,560 2,510
G & A 18 400 (47) (114) 257
REORGANIZATION 45 45
-------------------------------------------------------------------------------------------
0 0 (18) (445) 497 114 148
BONUS EXPENSE 337 337
INTEREST INCOME (32) (33) (2) (67)
SUBTOTAL 0 0 (32) (33) 335 0 270
OTHER (INC) EXP: 81 (15) (8) (66) 51 43
INTEREST EXPENSE (84) 84 41 41
-------------------------------------------------------------------------------------------
OPERATING PROFIT (LOSS) 0 (81) 29 (320) 144 22 (206)
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
CASH FLOW
SOURCES:
REVENUES 842 1,288 2,130
BORROWINGS 0
-------------------------------------------------------------------------------------------
TOTAL SOURCES: 842 0 0 0 1,288 0 2,130
USES:
G&A, OPERATING EXPENSES 26 (324) (1,055) 246 (1,107)
LIABILITIES (234) (234)
DEVELOPMT/CONSTRUCTN (244) 259 15
PREDEV/INVESTMENTS (645) 111 (534)
LOAN PAYMENTS 0
INTEREST 72 72
-------------------------------------------------------------------------------------------
TOTAL USES: (244) (645) 98 (558) (685) 246 (1,788)
-------------------------------------------------------------------------------------------
NET CASH FLOW FOR PERIOD 598 (645) 98 (558) 603 246 342
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
BEGINNING CASH 6,836
--------------
ENDING CASH 7,178
--------------
--------------
1.2.4
SCHEDULE 2.2
INVESTMENTS
KREG OPERATING CO. SUBSIDIARIES:
PERCENTAGE STATE/COUNTRY
OWNERSHIP (a) INCORPORATED
-------------- --------------
KREG - LA, Inc. 94 Delaware
KREG - NC, Inc. 84 Delaware
KREG - NW, Inc. 80 Delaware
KREG - OC, Inc. 80 Delaware
KREG - SD, Inc. 84 Delaware
KREG - SW, Inc. 84 Delaware
KREG - AZ, Inc. 100 Delaware
KREG Asia Holdings, Inc. 100 Delaware
KREG Taiwan, Inc. 100 Delaware
KREG Malaysia, Inc. 100 Delaware
KREG China, Inc. 100 Delaware
X.X. Xxxx Xxxxxxxxxx Xxxxxxx Xxx. 00 Xxxxxx Xxxxxxx
XXX EMPLOYEE AFFILIATES:
KREG - OC, L.P. 50 California
KREG - SW, L.P. 50 California
KREG - SW, EPA L.P. 50 Texas
KREG - AZ, L.P. 50 Arizona
(a) Except for X.X. Xxxx Investment Company Ltd., the balance of ownership is
held by employees.
SCHEDULE 2.5
REQUIRED CONSENTS: NONE
PROJECT CONSENTS:
PROJECT FINANCIAL PARTNER [2.5 (i)] LENDER [2.5 (ii)]
EXISTING GUARANTEES:
Nokia Ronoko BankOne
NAI N/A Comerica
RappCollins N/A Guaranty Federal
Nortel N/A Guaranty Federal
EPA N/A NationsBank
Arrow Center - Ph.1 Guardian & Capellino Bank of Hemet
Faraday Guardian & KREG Employees Comerica
Otay Mesa Citicorp NationsBank
Xxxx Anaheim Tech. Center Invesco (Stanford) NationsBank
Arden Center - Ph. I Invesco (Stanford) NationsBank
Spectrum Citicorp Sanwa Bank
Century Park East Northstar Comerica
Arden Center - Ph. II Invesco (Stanford) NationsBank
Lincoln Center The Lincoln National Bank One
Ocean Terrace Cigna Tokai Bank
Valley View - Ph. I Apollo Bank One
DEALS EXPECTED TO CLOSE PRIOR TO APRIL 30, 1998:
Arrowhead Center Citicorp Bank One
Technology Plaza Citicorp Sanwa Bank
Omni (Sabre Center) Citicorp Bank One
Disney Travel N/A Tokai Bank
Plantation Ph. I Invesco (Stanford) NationsBank
DEALS APPROVED BY BOARD THAT MAY OR MAY NOT CLOSE BY APRIL 30, 1998:
Omnicom to be determined Bank One
Nortel Phase II N/A Guaranty Federal
Oryx Energy to be determined to be determined
Plantation Phase II Invesco to be determined
Arrow Center, Phase II Guardian & Capellino to be determined
SCHEDULE 2.7 A
1. KOC Netting and Vesting Agreements
2. KOC Employment Agreements with Xxxx Xxxxxx, Xxxxx Xxxx. Xxxxx Xxxxx, Xxxxx
Xxxxx, Xxxxx Xxxxxxx and Xxx Xxxxxxx.
3. KREG Employment Agreements with Xxx Xxxx, Xxxxxxx Xxxxxxx and Xxxxxxx X.
Xxxxxx
4. The Xxxx Company 401 (K) Plus Plan
5. KREG Defined Benefit Pension Plan (frozen in December 1993)
6. KREG Executive Retirement and Savings Program (nonqualified plan which was
terminated effective November 15, 1996)
7. KREG 1993 Stock Option/Stock Issuance Plan
8. Pullman, Inc. Non-Contributory Pension Plan (liability assumed by MAFCO
Consolidated Group, Inc. in March 1997)
9. KREG Medical, Dental & Vision Insurance Plans (including pre-tax premium
plan)
10. KREG Group Universal Life Insurance
11. XXXX Xxxx-Term Disability Insurance
12. KREG Voluntary Accidental Death and Dismemberment (AD&D) Insurance
13. KREG Health Care and Dependent Care Reimbursement Accounts (flex spending)
14. Business Council Credit Union
15. Educational Assistance and Reimbursement Program
16. Extended Health Coverage (COBRA)
17. Workers' Compensation Insurance
18. State Disability Insurance
19. 1994 Stock Issuance Plans of (i) KREG-OC, Inc.; (ii) KREG-LA, Inc.; (iii)
KREG-SD, Inc.; (iv) KREG-NC, Inc.; (v) KREG-SW, Inc.; and (vi) KREG-NW,
Inc.
20. Verbal understanding with Xxxxxxx Xxxxxx regarding August 4, 1995
termination and participation in pending Xxxxxx/Wal-Mart transaction
(see draft severance agreement)
21. KREG Retiree Medical Plan
SCHEDULE 2.7 B
ERISA AFFILIATES
Percentage State/Country of
Ownership Incorporation
--------- -------------
Hengro Fifteen Inc. 100 Delaware
Xxxxxx Disc Media, Inc. 100 Delaware
Xxxxxx Facilities, Inc. 100 Delaware
New Xxxxxx Holdings Inc. 100 Delaware
Air Correction International, Inc. 100 Delaware
GCC Patents Holding Company Inc. 100 Delaware
Hengro Fourteen Inc. 100 Delaware
Hengro Ten Inc. 100 Delaware
Hengro Thirteen Inc. 100 Delaware
Xxxxxx Deltec Holdings Inc. 100 Delaware
Xxxxxx Deltec Corporation 100 Delaware
Xxxxxx Investments, Inc. Two 100 Delaware
IRE Corporation 100 Indiana
LJC Investments, Inc. 100 Delaware
Xxxxx International Inc. 80 Delaware
Newco A.C. Corporation 100 Delaware
Procon International Inc. 100 Delaware
Procon Incorporated 100 Delaware
Procofrance, S.A. 100 France
Procon (Great Britain) Limited 100 United Kingdom
Pullman Environmental Services Inc. 100 Delaware
Pullman Passenger Car Company Inc. 100 Delaware
Pullman Swindell Ltd. 000 Xxxxxx Xxxxxxx
Trailmobile International Ltd. 100 Delaware
Pullman Trailmobile de Mexico S.A. de C.V. 000 Xxxxxx
Trailmobile Leasing Corp. 100 Delaware
W.O.L. Corporation 000 Xxxxxxxx
X. X. C. Corporation 100 Delaware
Wheelabrator Export Corporation 100 Delaware
Xxxxxx Holdings Two Inc. 100 Delaware
Signal Landmark Holdings Inc. 100 Delaware
Signal Landmark 100 California
Calumet Real Estate Inc. 100 Delaware
Newport Realty Corp. 100 California
Signal Hawaii, Inc. 100 Hawaii
Signal Puako Corporation 100 Hawaii
KREG Residential Corp. 100 Delaware
2.7B-1
SCHEDULE 2.7 B
ERISA AFFILIATES
(continued)
Xxxxxx/KNO Holding Inc. 100 Delaware
Xxxx Communities Holdings, Inc. 100 Delaware
KCI - AV Holdings Company 100 California
AV Partnership 49 California
AV Partners Corp. 49 California
Xxxx Communities, Inc. 100 Delaware
KREG Holdings Inc. 100 Delaware
KREG Operating Co. 100 Delaware
KREG - LA, Inc. 94 Delaware
KREG - NC, Inc. 84 Delaware
KREG - NW, Inc. 80 Delaware
KREG - OC, Inc. 80 Delaware
KREG - SD, Inc. 84 Delaware
KREG - SW, Inc. 84 Delaware
KREG - AZ, Inc. 100 Delaware
KREG Asia Holdings, Inc. 100 Delaware
KREG Taiwan, Inc. 100 Delaware
KREG Malaysia, Inc. 100 Delaware
KREG China, Inc. 100 Delaware
X.X. Xxxx Xxxxxxxxxx Xx. Xxx. 00 Xxxxxx Xxxxxxx
NC Holding Company 100 Delaware
Wentworth By The Sea, Inc. * 50 Delaware
Newco A. D. Corporation 100 South Carolina
Twenty Newco Inc. 100 Delaware
Wentworth Holdings Inc. 100 Delaware
Wentworth By The Sea, Inc. * 50 Delaware
WESI Maryland Inc. 100 Delaware
WT/HRC Corporation 100 Illinois
Heat Research Corporation 100 Delaware
(*) Together NC Holding Company and Wentworth Holdings Inc. own 100% of
Wentworth By The Sea, Inc.
2.7B-2
SCHEDULE 2.8
The Internal Revenue Service ("IRS") has completed its examinations of the
tax returns of KREG and its consolidated subsidiaries, including formerly
affiliated entities, for the years ended December 31, 1989, 1990 and 1991. With
respect to each examination, the IRS has proposed material audit adjustments.
KREG disagrees with the positions taken by the IRS and has filed a protest with
the IRS to vigorously contest the proposed adjustments. After review of the
IRS's proposed adjustments, KREG estimates that, if upheld, the adjustments
could result in Federal tax liability, before interest, of approximately $17
million (net of amounts which may be payable by former affiliates pursuant to
tax sharing agreements). The IRS proposed adjustments, if upheld, could result
in a disallowance of up to $132 million of available NOL carryforwards, of which
none are recognized after consideration of the valuation allowance, as of
September 30, 1997. KREG has not determined the extent of potential accompanying
state tax liability adjustments should the proposed IRS adjustments be upheld.
KREG's protest was filed in August 1995 and is being considered by the IRS
Appeals Division. Management currently believes that the IRS's positions will
not ultimately result in any material adjustments to KREG's financial
statements. KREG is prepared to pursue all available administrative and judicial
appeal procedures with regard to this matter and KREG is advised that its
dispute with the IRS could take up to five years to resolve.
SCHEDULE 2.9
TRANSACTIONS WITH AFFILIATES
1. Reconciliation of X. Xxxxxxx cost center
reimbursement of 62.5% due to KOC from
KREG (assuming 4/30/98 closing) ** $ *
2. Reimbursement for workers compensation
insurance due to KREG from KOC $ *
3. Reimbursement for medical insurance due
to KREG from KOC $ *
4. Reimbursement, if any, for medical and
dependent care reimbursement accounts. $ *
5. Reimbursement for telephone systems and
service due to KREG from KOC $ *
----------
Total $ *
----------
----------
6. 1994 Stock Issuance Plans of (i) KREG-OC, Inc.; (ii) KREG-LA, Inc.; (iii)
KREG-SD, Inc.; (iv) KREG-NC, Inc.; (v) KREG-SW, Inc.; and (vi) KREG-NW,
Inc.
NOTES:
* Amounts to be estimated one day prior to Closing Date for the purpose
of determining the amount to be paid on the Closing Date. Within
thirty (30) days after the Closing Date a final accounting shall be
completed and reviewed by the accounting staffs of KDP and KREG and
any adjustments shall be paid in the same manner as set forth in
Section 1.2 (c).
** If closing does not occur on a month-end, then KOC would owe KREG
reimbursement for salaries, payroll taxes, benefits, rent and other
overhead for any stub period between the closing date and the end of
the next payroll period for X. Xxxx, X. Xxxxx and X. Xxxxxxxx (assumes
these 3 KREG employees stay on KREG payroll until the end of a pay
period; alternatively, KREG could remove these people from its payroll
as of closing date if that is more convenient. However, since rent and
related overhead costs are paid by KREG in advance, KOC would owe KREG
for such costs for any stub period.)
SCHEDULE 2.12
1. On February 9, 1998, KREG-SW, EPA, L.P. was threatened with litigation
regarding a claim for commissions payable with respect to KOC's EPA project in
Kansas City, Kansas.
2. XXXXXXX CORPORATION V. WT/HRC CORPORATION AND KREG-OC, INC., filed March
25, 0000, Xxxxxxx Xxxxx, Xxxx Xxxxxx, Xxxxxxxx.
SCHEDULE 5.5
KREG CORPORATE GUARANTEES
LOAN
AMOUNT MATURITY
LENDER PROJECT LOCATION (IN MILLIONS) DATE
------ ------- -------- ------------- ----
1. BANK ONE Nokia Los Colinas, TX $ 37.7 4/98
2. BANK XXX Xxxxxxx Xxxxxx Xxxxxxxxxx, XX 35.5 12/99
spec. office
3. BANK ONE Valley View - Ph. I Las Vegas, NV 6.2 9/99
4. BANK OF HEMET Arrow Center - Ph. I Rancho Cucamonga 3.5 6/98
spec. Industrial
5. COMERICA Faraday - spec.. Carlsbad, CA 9.3 8/98
industrial
6. COMERICA NAI Carlsbad, CA 9.7 12/98
7. COMERICA Century Park West L.A. 7.9 7/99
East - spec.
office rehab
8. GUARANTY FEDERAL RappCollins Los Colinas, TX 10.8 2/99
9. GUARANTY FEDERAL Nortel Richardson, TX 48.1 10/98
10. NATIONSBANK EPA Kansas City, KS 31.5 12/99
11. NATIONSBANK Otay Mesa San Diego, CA 9.2 8/00
spec. Industrial
12. NATIONSBANK Xxxx Anaheim Anaheim, CA 13.1 5/00
Tech. Center
13. NATIONSBANK Arden Center - Ph. I Hayward, CA 9.7 11/00
spec. industrial
14. NATIONS BANK Arden Center - Ph. II Hayward, CA 5.0 2/00
spec. industrial
15. SANWA BANK Spectrum Carlsbad, CA 26.9 10/99
spec. industrial
16. TOKAI BANK Ocean Terrace San Diego, CA 22.7 1/00
spec. office/R&D ----
TOTAL EXISTING GUARANTEES $ 286.8
-----
5.5-1
SCHEDULE 5.5
KREG CORPORATE GUARANTEES
(CONTINUED)
LOAN
AMOUNT
LENDER PROJECT LOCATION (IN MILLIONS)
------ ------- -------- -------------
LOANS EXPECTED TO CLOSE IN APRIL
1. BANK XXX Xxxx (Xxxxx Xxxxxx) Xxx Xxxxx, XX $ 12.6
2. BANK XXX Xxxxxxxxx Xxx. Xxxxxxx, XX 12.1
spec. office
3. SANWA BANK Technology Plaza San Diego, CA 9.4
spec. industrial
4. TOKAI BANK Disney Travel Anaheim, CA 2.4
-------
PLANNED APRIL CLOSINGS 36.5
OTHER DEALS-IN-PROGRESS
1. BANK ONE Omnicom Plano, Tx 37.0
2. GUARANTY FEDERAL Nortel Phase II Richardson, TX 32.0
3. TO BE DETERMINED Oryx Energy Plano, TX 21.0
4. TO BE DETERMTINED Plantation City of Industry, 55.0
spec. industrial CA
5. TO BE DETERMTINED Arrow Center, Rancho Cucamonga, 6.0
phase II CA ---
spec. industrial
OTHER DEALS-IN-PROGRESS $187.5
------
TOTAL AUTHORIZED GUARANTEES $474.3
------
5.5-2
SCHEDULED 8.1 (h)
PERSONAL PROPERTY
XXXXXX X. XXXX'X OFFICE:
Computer; printer, etc. (or KOC can reimburse KREG $5,000)
XXXXXXX X. XXXXXX'X OFFICE:
Executive Chair
Executive Desk, credenza, and file cabinets (in Xxxxx Xxxx'x office)
Wood filing cabinets (2)
Artwork (2)
Computer (on desk of Xxxx Xxxxxxxx)
Printer, etc.
Misc. desk supplies
XXXXXXXXX XXXX'X WORK AREA:
Chair
Steel filing cabinets (2)
Computer
Printer, etc. (on desk of Xxxx Xxxxxxxx)
Fax Machine
Typewriter
Inter-com
Heater
Electronic rollodex (2)
Misc. desk supplies
XXXXXX XXXXXXX'X OFFICE:
Computer, printer, etc.
Chair
File Cabinet
Calculator
Misc. desk supplies
XXX XXXXXXXX'X OFFICE:
Computer, printer, etc.
Chair
Calculator
Metal book shelf
Misc. desk supplies
XXXX XXXXXXXX'X WORK AREA:
Casio 10-key calculator
Heavy duty 3-hole punch
Misc. desk supplies
XXXX XXXXXXXX'X WORK AREA:
Computer, printer, etc.
Chair
Calculator
Modem
Bulletin Board
Misc. desk supplies
XXXXXX XXXXXXXXXXXXXX'X WORK AREA:
Computer, printer, etc.
Chair
Fax Machine
Typewriter
Calculator
Heavy Duty 3-hole punch and stapler
2-hole punch
Bulletin Board
Misc. desk supplies
GENERAL:
Phone System from 0000 XxxXxxxxx Xxxx.
Postage Meter from 0000 XxxXxxxxx Xxxx.
Compaq Prosignia 200 Server
50% of Anzac check printer & cartridge (owned with TKC/International)
Xxxxxxx Xxxx'x Toshiba Laptop (or KOC can reimburse KREG $1,000)
Furniture and copier at 0000 XxxXxxxxx Xxxx.
8.1(h)-2
